§ 3—302. Holder in due course
(a) Subject to subsection (c) of this section and section 3—106(d) of this title, “holder in due course” means the holder of an instrument if:
(1) the instrument when issued or negotiated to the holder does not bear such apparent
evidence of forgery or alteration or is not otherwise so irregular or incomplete as
to call into question its authenticity; and
(2) the holder took the instrument (i) for value, (ii) in good faith, (iii) without notice
that the instrument is overdue or has been dishonored or that there is an uncured
default with respect to payment of another instrument issued as part of the same series,
(iv) without notice that the instrument contains an unauthorized signature or has
been altered, (v) without notice of any claim to the instrument described in section 3—306 of this title, and (vi) without notice that any party has a defense or claim in recoupment described
in section 3—305(a) of this title.
(b) Notice of discharge of a party, other than discharge in an insolvency proceeding,
is not notice of a defense under subsection (a) of this section, but discharge is
effective against a person who became a holder in due course with notice of the discharge.
Public filing or recording of a document does not of itself constitute notice of a
defense, claim in recoupment, or claim to the instrument.
(c) Except to the extent a transferor or predecessor in interest has rights as a holder
in due course, a person does not acquire rights of a holder in due course of an instrument
taken (i) by legal process or by purchase in an execution, bankruptcy, or creditor’s
sale or similar proceeding, (ii) by purchase as part of a bulk transaction not in
ordinary course of business of the transferor, or (iii) as the successor in interest
to an estate or other organization.
(d) If, under section 3—303(a)(1) of this title, the promise of performance that is the consideration for an instrument has been
partially performed, the holder may assert rights as a holder in due course of the
instrument only to the fraction of the amount payable under the instrument equal to
the value of the partial performance divided by the value of the promised performance.
(e) If (i) the person entitled to enforce an instrument has only a security interest in
the instrument and (ii) the person obliged to pay the instrument has a defense, claim
in recoupment, or claim to the instrument that may be asserted against the person
who granted the security interest, the person entitled to enforce the instrument may
assert rights as a holder in due course only to an amount payable under the instrument
which, at the time of enforcement of the instrument, does not exceed the amount of
the unpaid obligation secured.
(f) To be effective, notice must be received at a time and in a manner that gives a reasonable
opportunity to act on it.
(g) This section is subject to any law limiting status as a holder in due course in particular
classes of transactions. (Added 1993, No. 158 (Adj. Sess.), § 12, eff. Jan. 1, 1995.)