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Uniform Law

U.C.C. § 3-302 — Holder in Due Course

Editorial summary. A holder in due course is a holder who takes an instrument for value, in good faith, without notice of overdue status, dishonor, uncured default, alteration, or defense or claim, and without apparent evidence of forgery, alteration, or irregularity casting doubt upon authenticity. § 3-302 codifies the classical law-merchant doctrine of takings free of latent equities.

Citation: U.C.C. § 3-302 (Am. L. Inst. & Unif. L. Comm'n 1990)Jurisdiction: United StatesEffective: 1990-08-01

Text

Governing Rule

Uniform Act text.

Editorial note. Section 3-302(a) enumerates the requirements: (1) authenticity of the instrument; (2) taking (i) for value, (ii) in good faith, (iii) without the enumerated notice categories.

Uniform Act text.

Editorial note. The holder-in-due-course doctrine is the American reception of the English law-merchant rule articulated in Miller v. Race, 1 Burr. 452 (1758), and codified in the Bills of Exchange Act 1882 and the Uniform Negotiable Instruments Law (1896).

Consequences

Uniform Act text.

Editorial note. A holder in due course takes the instrument free of most defenses of the maker or drawer (§ 3-305(b)); the maker may assert only the 'real defenses' listed in § 3-305(a)(1) — infancy, duress, fraud in the factum, illegality, discharge in insolvency, and the like.

Uniform Act text.

Editorial note. Holder-in-due-course status remains the dispositive question in many note-enforcement cases. Federal Trade Commission Rule 433 (16 C.F.R. § 433) preserves the maker's defenses against a purchaser of consumer credit paper, effectively abolishing the doctrine in consumer transactions.

Uniform Act text.

Editorial note. See U.C.C. §§ 3-303 (value); 3-305 (defenses); 3-306 (claims to instrument); § 1-201(b)(20) (good faith); 16 C.F.R. § 433 (FTC Holder Rule).

Revision history

  • 1990-08-01 — Promulgated with Revised Article 3.

Related Publications

Editorial articles from Real Law Society Press that discuss this authority.

Canonical source: https://www.law.cornell.edu/ucc/3/3-302
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