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    El-Sayed Mohammed
    This document discusses the concept of a holder in due course in commercial paper. A holder in due course is entitled to payment on a negotiable instrument despite any personal defenses the maker or drawer may have. To be a holder in due course, one must be a holder of a properly negotiated negotiable instrument, give value for the instrument, take it in good faith, and take it without notice that it is overdue, dishonored, or subject to any claims against it. Giving value includes paying consideration, taking it as satisfaction of a debt, or acquiring a security interest in the instrument.

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    This document discusses the concept of a holder in due course in commercial paper. A holder in due course is entitled to payment on a negotiable instrument despite any personal defenses the maker or drawer may have. To be a holder in due course, one must be a holder of a properly negotiated negotiable instrument, give value for the instrument, take it in good faith, and take it without notice that it is overdue, dishonored, or subject to any claims against it. Giving value includes paying consideration, taking it as satisfaction of a debt, or acquiring a security interest in the instrument.

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    This document discusses the concept of a holder in due course in commercial paper. A holder in due course is entitled to payment on a negotiable instrument despite any personal defenses the maker or drawer may have. To be a holder in due course, one must be a holder of a properly negotiated negotiable instrument, give value for the instrument, take it in good faith, and take it without notice that it is overdue, dishonored, or subject to any claims against it. Giving value includes paying consideration, taking it as satisfaction of a debt, or acquiring a security interest in the instrument.

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    © All Rights Reserved
    Download as RTF, PDF, TXT or read online from Scribd
    Download as rtf, pdf, or txt
    16 views2 pages

    Scan 0007

    Uploaded by

    El-Sayed Mohammed
    This document discusses the concept of a holder in due course in commercial paper. A holder in due course is entitled to payment on a negotiable instrument despite any personal defenses the maker or drawer may have. To be a holder in due course, one must be a holder of a properly negotiated negotiable instrument, give value for the instrument, take it in good faith, and take it without notice that it is overdue, dishonored, or subject to any claims against it. Giving value includes paying consideration, taking it as satisfaction of a debt, or acquiring a security interest in the instrument.

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    MODULE 25 COMMERCIAL PAPER 193

    5. Federal law standardizes endorsements on checks--endorser should turn check over and
    sign in
    designated area
    6. Purpose is to avoid interference with bank's endorsements
    7. Endorsements placed outside this area do not destroy negotiability but may delay clearing pro-

    cess.
    8. If check has statement that it is nonnegotiable, check is still negotiable
    a. This is not true of other negotiable instruments whereby such statement destroys negotiability
    9. Holder in Due Course
    10. Concept of holder in due course (also called HDC) is very important for CPA exam purposes. A
    HDC is entitled to payment on negotiable instrument despite personal defenses that maker or drawer
    of instrument may have
    11. Recall that an assignee of contract rights receives only rights that assignor had (i.e., assignee takes

    subject to all defenses that couldhave been asserted against assignor)


    12. Likewise, an ordinary holder of a negotiable instrument has same rights as assignee
    13. To be holder in due course, a taker of instrument must
    14. Be a holder of a properly negotiated negotiable instrument
    15. Give value for instrument
    (1) Holder gives value if s/he
    (a) Pays or performs agreed consideration
    1] An executory promise (promise to give value in the future) is not value until per-
    formed
    (b) Takes as a satisfaction of a previous existing debt
    (c) Gives another negotiable instrument
    (d) Acquires a security interest in the instrument (e.g., the holder takes possession of the in-
    strument as collateral for another debt)
    (2) A bank takes for value to the extent that credit has been given for a deposit and withdrawn
    (a) FIFO method is used to determine whether it has been withdrawn (money is considered to
    be withdrawn from an account in the order in which it was deposited)
    (3) Value does not have to be for full amount of instrument;
    (a) Purchase at a discount is value for full face amount of instrument provided HDC took in
    good faith (i.e., as long as not too large a discount)
    EXAMPLE: Purchase of a $1,000 instrument in good faith for $950 is consideredfull value, but
    purchase of the same instrument for $500 is not considered full value when market conditions show that
    the discount is excessive.
    EXAMPLE: Handy purchases a negotiable note that has aface value of $1,000. She gives $600 in cash
    now and agrees to pay $350 in one week. Handy has given value only to the extent of $600 and thus can
    qualify as a HDC for $600. Once she pays the remaining $350, she qualifies as a HDC for the full
    $1,000. Note that even though she paid only $950, she has HDC status for the entire $1,000 because it
    was a reasonable discount.
    16. Take in good faith
    (1) Good faith defined as honesty in fact and observance of reasonable commercial standards of
    fair dealing
    17. Take without notice that it is overdue, has been dishonored, or that any person has a defense or
    claim to it
    (1) Holder has notice when s/he knows or has reason to know (measured by objective "reasonable
    person" standard)
    (2) Overdue
    EXAMPLE: H acquires a note or draft that is three weeks past the due date on the instrument.
    (a) Instrument not overdue if default is on payment of interest only
    (b) Domestic check, although payable on demand, is overdue ninety days after its date

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