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Does a holder in due course apply to a gift by contract?

Does a holder in due course apply to a gift by contract?

Q: What are the essential elements of holder in due course?

The essential elements of a holder in due course include: receiving the instrument for value, acting in good faith, and having no notice of any claims or defenses against the instrument. These criteria ensure that the holder has a legitimate claim to enforce the instrument without interference.

Q: What defenses are not available against a holder in due course?

Defenses that are not available against a holder in due course include personal defenses like failure of consideration or breach of contract. These defenses do not affect the HDC's ability to enforce the instrument, as the HDC is protected from such claims.

Q: What are the three required conditions for a holder to be a holder in due course?

The three required conditions for a holder to be a holder in due course are: 1) the holder must have received the instrument for value, 2) the holder must act in good faith, and 3) the holder must have no notice of any claims or defenses against the instrument.

Full question:

Does a holder in due process apply to a gift by contract?

Category: Contracts
Date: 04/07/2025
State: New Mexico

Answer:

To be a holder in due course of commercial paper, a person must meet specific criteria:

Receive the instrument for value
Act in good faith
Have no notice that the paper is past due or has been dishonored
Have no notice of defenses or adverse claims

Importantly, value must be given. For instance, if someone receives a promissory note as a gift, they are not considered a holder in due course because they did not provide value in exchange. A person can take an instrument for value in several ways:

By performing the act for which the instrument was issued, such as delivering goods in exchange for a check
By acquiring a security interest in the commercial paper, like using a promissory note as collateral for a loan
By accepting the instrument as payment for a debt or as evidence of a debt

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

Which of the following is a defense that can be used against a holder in due course (HDC)?

Defenses against a holder in due course include fraud in the inducement, lack of capacity, and illegality. If the instrument was obtained through fraud or if the signer lacked the legal ability to enter into a contract, these defenses can be raised. Additionally, if the instrument is void due to illegal purposes, an HDC cannot enforce it.