- Consolidated Laws - Uniform Commercial Code
PART 3
RIGHTS OF A HOLDER
Section 3--301. Rights of a Holder.
The holder of an instrument whether or not he is the owner may
transfer or negotiate it and, except as otherwise provided in Section
3--603 on payment or satisfaction, discharge it or enforce payment in
his own name.
Section 3--302. Holder in Due Course.
(1) A holder in due course is a holder who takes the instrument
(a) for value; and
(b) in good faith; and
(c) without notice that it is overdue or has been dishonored or
of any defense against or claim to it on the part of any
person.
(2) A payee may be a holder in due course.
(3) A holder does not become a holder in due course of an instrument:
(a) by purchase of it at judicial sale or by taking it under
legal process; or
(b) by acquiring it in taking over an estate; or
(c) by purchasing it as part of a bulk transaction not in regular
course of business of the transferor.
(4) A purchaser of a limited interest can be a holder in due course
only to the extent of the interest purchased.
S 3--303. Taking for Value.
A holder takes the instrument for value
(a) to the extent that the agreed consideration has been performed or
that he acquires a security interest in or a lien on the instrument
otherwise than by legal process; or
(b) when he takes the instrument in payment of or as security for an
antecedent claim against any person whether or not the claim is due; or
(c) when he gives a negotiable instrument for it or makes an
irrevocable commitment to a third person.
Section 3--304. Notice to Purchaser.
(1) The purchaser has notice of a claim or defense if
(a) the instrument is so incomplete, bears such visible evidence
of forgery or alteration, or is otherwise so irregular as to
call into question its validity, terms or ownership or to
create an ambiguity as to the party to pay; or
(b) the purchaser has notice that the obligation of any party is
voidable in whole or in part, or that all parties have been
discharged.
(2) The purchaser has notice of a claim against the instrument when he
has knowledge that a fiduciary has negotiated the instrument in payment
of or as security for his own debt or in any transaction for his own
benefit or otherwise in breach of duty.
(3) The purchaser has notice that an instrument is overdue if he has
reason to know
(a) that any part of the principal amount is overdue or that
there is an uncured default in payment of another instrument
of the same series; or
(b) that acceleration of the instrument has been made; or
(c) that he is taking a demand instrument after demand has been
made or more than a reasonable length of time after its
issue. A reasonable time for a check drawn and payable within
the states and territories of the United States and the
District of Columbia is presumed to be thirty days.
(4) Knowledge of the following facts does not of itself give the
purchaser notice of a defense or claim
(a) that the instrument is antedated or postdated;
(b) that it was issued or negotiated in return for an executory
promise or accompanied by a separate agreement, unless the
purchaser has notice that a defense or claim has arisen from
the terms thereof;
(c) that any party has signed for accommodation;
(d) that an incomplete instrument has been completed, unless the
purchaser has notice of any improper completion;
(e) that any person negotiating the instrument is or was a
fiduciary;
(f) that there has been default in payment of interest on the
instrument or in payment of any other instrument, except one
of the same series.
(5) The filing or recording of a document does not of itself
constitute notice within the provisions of this Article to a person who
would otherwise be a holder in due course.
(6) To be effective notice must be received at such time and in such
manner as to give a reasonable opportunity to act on it.
(7) In any event, to constitute notice of a claim or defense, the
purchaser must have knowledge of the claim or defense or knowledge of
such facts that his action in taking the instrument amounts to bad
faith.
Section 3--305. Rights of a Holder in Due Course.
To the extent that a holder is a holder in due course he takes the
instrument free from
(1) all claims to it on the part of any person; and
(2) all defenses of any party to the instrument with whom the holder
has not dealt except
(a) infancy, to the extent that it is a defense to a simple
contract; and
(b) such other incapacity, or duress, or illegality of the
transaction, as renders the obligation of the party a
nullity; and
(c) such misrepresentation as has induced the party to sign the
instrument with neither knowledge nor reasonable opportunity
to obtain knowledge of its character or its essential terms;
and
(d) discharge in insolvency proceedings; and
(e) any other discharge of which the holder has notice when he
takes the instrument.
Section 3--306. Rights of One Not Holder in Due Course.
Unless he has the rights of a holder in due course any person takes
the instrument subject to
(a) all valid claims to it on the part of any person; and
(b) all defenses of any party which would be available in an action on
a simple contract; and
(c) the defenses of want or failure of consideration, non-performance
of any condition precedent, non-delivery, or delivery for a special
purpose (Section 3--408); and
(d) the defense that he or a person through whom he holds the
instrument acquired it by theft, or that payment or satisfaction to such
holder would be inconsistent with the terms of a restrictive
indorsement. The claim of any third person to the instrument is not
otherwise available as a defense to any party liable thereon unless the
third person himself defends the action for such party.
Section 3--307. Burden of Establishing Signatures, Defenses and Due
Course.
(1) Unless specifically denied in the pleadings each signature on an
instrument is admitted. When the effectiveness of a signature is put in
issue
(a) the burden of establishing it is on the party claiming under
the signature; but
(b) the signature is presumed to be genuine or authorized except
where the action is to enforce the obligation of a purported
signer who has died or become incompetent before proof is
required.
(2) When signatures are admitted or established, production of the
instrument entitles a holder to recover on it unless the defendant
establishes a defense.
(3) After it is shown that a defense exists a person claiming the
rights of a holder in due course has the burden of establishing that he
or some person under whom he claims is in all respects a holder in due
course.
