Negotiable Instruments Law
Article 3 Commercial Paper(Continue)
of a Holder
3-301. Rights of a Holder.
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 indorse payment in his own name.
3-302. Holder in Due
A holder in due course is a holder who takes the instrument
for value; and
in good faith; and
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.
A payee may be a holder in due course.
A holder does not become a holder in due course of an instrument:
by purchase of it at judicial sale or
by taking it under legal process; or
by acquiring it in taking over an estate;
by purchasing it as part of a bulk transaction
not in regular course of business of the transferor.
A purchaser of a limited interest can be a holder in due course
only to the extent of the interest purchased.
3-303. Taking for Value.
holder takes the instrument for value:
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
when he takes the instrument in payment
of or as security for an antecedent claim against any person whether or
not the claims is due; or
when he gives a negotiable instrument
for it or makes an irrevocable commitment to a third person.
3-304. Notice to Purchaser.
The purchaser has notice of a claim or defense if
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
the purchaser has notice that the obligation
of any party is voidable in whole or in part, or that all parties have
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.
The purchaser has notice that an instrument is overdue if he has
reason to know:
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
that acceleration of the instrument has
been made; or
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
Knowledge of the following facts does not of itself give the purchaser
notice of a defense or claim:
that the instrument is antedated or postdated;
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
that any party has signed for accommodation;
that an incomplete instrument has been
completed, unless the purchaser has notice of any improper completion;
that any person negotiating the instrument
is or was a fiduciary;
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.
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.
To be effective notice must be received at such time and in such
manner as to give a reasonable opportunity to act on it.
3-305. Rights of a Holder
in Due Course.
the extent that a holder is a holder in due course he takes the instrument
all claims to it on the part of any person; and
all defenses of any party to the instrument with whom the holder
has not dealt except;
infancy, to the extent that it is a defense
to a simple contract; and
such other incapacity, or duress, or
illegality of the transaction, as renders the obligation of the party
a nullity; and
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;
discharge in insolvency proceedings;
any other discharge of which the holder
has notice when he takes the instrument.
3-306. Rights of One
Not Holder in Due Course.
he has the rights of a holder in due course, any person takes the instrument
all valid claims to it on the part of
any person; and
all defenses of any party which would
be available in an action on a simple contract; and
the defenses of want or failure of consideration,
nonperformance of any condition precedent, non-delivery, or delivery for
a special purpose (Section 3-408); and
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.
3-307. Burden of Establishing
and Due Course.
Unless specifically denied in the pleadings each signature on an
instrument is admitted. When
the effectiveness of a signature is put in issue:
the burden of establishing it is on the
party claiming under the signature; but
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
When signatures are admitted or established, production of the
instrument entitles a holder to recover on it unless the defendant establishes
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.
to Part 4 Liability