![]() Webster is an HDC though he gave value in the past. Blackstone unexpectedly receives a refund check for $1,000 from the Internal Revenue Service and indorses it to Webster. Blackstone owes Webster $1,000, due in thirty days. Likewise, taking an instrument in payment of, or as security for, a prior claim, whether or not the claim is due, is a taking for value. A holder who acquires a lien on, or a security interest in, an instrument other than by legal process has taken for value.ģ. Value is not limited to cash or the fulfillment of a contractual obligation. ![]() Section 3-303(a)(4) provides that an instrument is issued or transferred for value if the issuer or transferor gives it in exchange for a negotiable instrument, and Section 3-303(5) says an instrument is transferred for value if the issuer gives it in exchange for an irrevocable obligation to a third party.Ģ. The UCC presents two exceptions to the rule that an executory promise is not value. ![]() Rackets would be an HDC only to the extent of $2,500, and the debtor-Paul Purchaser-could refuse to pay $2,500 of the promised sum. Suppose the tennis rackets were to come in two lots, each worth $2,500, and Rackets only delivered one lot. Omni Trading, Inc., Section 21.3 "Cases", regarding value as related to executory contracts.Ī taker for value can be a partial HDC if the consideration was only partly performed. If Rackets had been an HDC, Purchaser would be obligated to pay on the note regardless of the defense he might have had against Love, the payee. When Rackets presents the note to Purchaser for payment, he refuses to pay, raising his defense against Love. Assume Paul Purchaser has a defense against Love (a reason why he doesn’t want to pay on the note), perhaps because the car was defective. Love has a claim for $5,000 against Rackets, which is not an HDC because its promise to deliver is still executory. Rackets never delivers the tennis rackets. Love negotiates the note to Rackets, Inc., for a new shipment of tennis rackets to be delivered in thirty days. Lorna Love sells her car to Paul Purchaser for $5,000, and Purchaser gives her a note in that amount. But this executory (not yet performed) promise given by A is not giving “value” to support the HDC status because the promise has not been performed. Suppose A contracts with B: “I’ll buy your car for $5,000.” Under contract law, A has given consideration: the promise is enough. (5) The instrument is issued or transferred in exchange for the incurring of an irrevocable obligation to a third party by the person taking the instrument.ġ. (4) The instrument is issued or transferred in exchange for a negotiable instrument. (3) The instrument is issued or transferred as payment of, or as security for, an antecedent claim against any person, whether or not the claim is due. (2) The transferee acquires a security interest or other lien in the instrument other than a lien obtained by judicial proceeding. (1) The instrument is issued or transferred for a promise of performance, to the extent the promise has been performed. Here is the UCC language:Īn instrument is issued or transferred for value if any of the following apply: But “value” here is not the same as consideration under contract law. Section 3-303 of the UCC describes what is meant by transferring an instrument “for value.” In a broad sense, it means the holder has given something for it, which sounds like consideration. A holder with such a preferred position can then treat the instrument almost as money, free from the worry that someone might show up and prove it defective. What the holder in due course gets is an instrument free of claims or defenses by previous possessors. The holder in due course is really the crux of the concept of commercial paper and the key to its success and importance. A mere holder is simply an assignee, who acquires the assignor’s rights but also his liabilities an ordinary holder must defend against claims and overcome defenses just as his assignor would. If a person to whom an instrument is negotiated becomes nothing more than a holder, the law of commercial paper would not be very significant, nor would a negotiable instrument be a particularly useful commercial device. But a holder’s rights are ordinary, as we noted briefly in Chapter 19 "Nature and Form of Commercial Paper". Importance of the Holder-in-Due-Course ConceptĪ holder is a person in possession of an instrument payable to bearer or to the identified person possessing it.
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