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What are the benefits of being a holder in due course??

Paterson, NJ |

What are the benefits of being a holder in due course.

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If you are speaking of a negotiable instrument, the principal benefits are that many defenses to contracts are not available to holders in due course of negotiable instruments. The second benefit is the means of endorsement as a manner of transfer.

The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also terms and conditions item 9, incorporated as if it was reprinted here.



What kind of defenses are not available? Thanks

Michael Charles Doland

Michael Charles Doland


If, for example, the negotiable instrument was payment for a contract, then defective goods, late delivery, failure of goods to be equal to the sample provided, damage to goods in transit would be a non-exhaustive list of defenses not allowed.


A holder in due course who has provided value in good faith for a negotiable instrument can be insulated from claims against the original parties to the transaction. In some ways (too complicated too discuss here), the Uniform Commercial Code elevates a holder in due course to a status above a normal party to a contract. The general idea is to protect an innocent third party (the holder in due course) who has no notice of a defect and bargains for the negotiable instrument in good faith. There can be other rights, and obligations, of being a holder in due course beyond this simplistic explanation, but I hope this provides some general information as a starting point for you.

Good luck,

PS: If this was most helpful please mark it as a best answer.

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The other answers are excellent. I want to add two points (note, the topic of holder in due course is fascinating and there is a myriad of laws and cases regarding same --the foundation of same is found in the Uniform Commercial Code). First, even if holder in due course, some defenses can still be raised. Second, unbeknownst to most, any endorsement page that might be on a page that is separate from the instrument must be affixed to the instrument such as by stapling. Years ago I was involved in such a case in federal court. There a lender bought millions of dollars of instruments and sued obligors when they defaulted for non-payment. It turned out that the endorsements that transferred the instruments were on separate pages that were not stapled. The lender had boxes of instruments that had each instrument folded with the endorsement page. The court held this was problematic and could be a defect barring any collection since cannot prove for sure that the endorsement goes with the instrument.
Note, I do not represent you and no attorney client privilege exists between us. I recommend you obtain counsel.

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