Legal Definitions - holder in due course

A holder in due course is a person who receives or holds a negotiable instrument, such as a check or promissory note, in good faith and in exchange for value. This means that the holder received the instrument without any knowledge that it was overdue or had been previously dishonored. As a result, the holder is entitled to payment by the creator of the instrument.

• John sells his car to Jane and accepts a promissory note as payment. Jane later sells the promissory note to Mark for its full value. Mark is a holder in due course because he received the note in good faith and for value, without any knowledge that it was overdue or had been dishonored.
• Tom writes a check to his landlord for rent. The landlord deposits the check, but it bounces due to insufficient funds in Tom's account. The landlord then sells the check to a collection agency. The collection agency is not a holder in due course because they received the check after it had been dishonored.

The examples illustrate that a holder in due course is someone who receives a negotiable instrument in good faith and for value, without any knowledge of its dishonor or overdue status. This person is entitled to payment by the creator of the instrument, even if there are issues with the payment such as insufficient funds in the account.