Sec. 42a-3-302. Holder in due course. - Connecticut Statutes

      Sec. 42a-3-302. Holder in due course. (a) Subject to subsection (c) and section 42a-3-106(d), "holder in due course" means the holder of an instrument if:

      (1) The instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and

      (2) The holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument described in section 42a-3-306, and (vi) without notice that any party has a defense or claim in recoupment described in section 42a-3-305(a).

      (b) Notice of discharge of a party, other than discharge in an insolvency proceeding, is not notice of a defense under subsection (a), but discharge is effective against a person who became a holder in due course with notice of the discharge. Public filing or recording of a document does not of itself constitute notice of a defense, claim in recoupment or claim to the instrument.

      (c) Except to the extent a transferor or predecessor in interest has rights as a holder in due course, a person does not acquire rights of a holder in due course of an instrument taken (i) by legal process or by purchase in an execution, bankruptcy, or creditor's sale or similar proceeding, (ii) by purchase as part of a bulk transaction not in ordinary course of business of the transferor, or (iii) as the successor in interest to an estate or other organization.

      (d) If, under section 42a-3-303(a)(1), the promise of performance that is the consideration for an instrument has been partially performed, the holder may assert rights as a holder in due course of the instrument only to the fraction of the amount payable under the instrument equal to the value of the partial performance divided by the value of the promised performance.

      (e) If (i) the person entitled to enforce an instrument has only a security interest in the instrument and (ii) the person obliged to pay the instrument has a defense, claim in recoupment or claim to the instrument that may be asserted against the person who granted the security interest, the person entitled to enforce the instrument may assert rights as a holder in due course only to an amount payable under the instrument which, at the time of enforcement of the instrument, does not exceed the amount of the unpaid obligation secured.

      (f) To be effective, notice must be received at a time and in a manner that gives a reasonable opportunity to act on it.

      (g) This section is subject to any law limiting status as a holder in due course in particular classes of transactions.

      (1959, P.A. 133, S. 3-302; P.A. 91-304, S. 28.)

      History: P.A. 91-304 substantially revised section.

      Annotations to former statutes:

      (1958 Rev., S. 39-1): Bank is "holder" of note which has been endorsed by it for collection and returned unpaid. 76 C. 126. Transferee for value not technically a holder where payee did not endorse. 124 C. 181.

      (1958 Rev., S. 39-53): One who takes note as collateral security is holder in due course; negligence of maker in again putting notes in circulation after they are once paid. 72 C. 576. Fraud of defendant, not participated in by one who takes note as collateral security, no defense to suit by him. 74 C. 200; 77 C. 636. Whether one who takes notes as collateral security is bona fide holder is question of fact. 78 C. 211; 91 C. 260. Valuable consideration necessary at common law. 82 C. 333. One who takes note of third person in payment of stock under agreement to collect it and remit any balance is a holder in due course. Id., 585. Note taken after maturity cannot make holder one in due course; 88 C. 720; 105 C. 79; even though note has been fraudulently altered as to time of payment. 89 C. 592. Knowledge of holder that endorsement was for accommodation does not prevent him from being a holder in due course nor impair his right to recover against such accommodation endorser. 92 C. 707. And likewise where note itself is given for accommodation. 97 C. 711. Purchaser of corporate bonds from pledgee before maturity is holder in due course though he paid less than par. Id., 592. Cited. 111 C. 630; 118 C. 116. Doctrine of notice as it affects transactions generally does not apply to negotiable instruments. 119 C. 371. Bank which gives depositor draft for amount of account, and later cashes it after account has been garnisheed, does not become holder in due course. 122 C. 171. Payee who repays collecting bank after dishonor, not a holder in due course. 131 C. 411. Cited. 139 C. 539. See note to section 42a-3-408. The fact that an endorsement is restrictive does not necessarily prevent the endorsee from being a holder in due course. 147 C. 215.

      Subsec. (3):

      Where real estate developer made false statements and purchasers in reliance gave negotiable notes, assignee with knowledge of this fraud held not a holder in due course. 1 CS 176. Where endorsee of an accommodation promissory note discounted it for payee contrary to provisions of a collateral agreement of which he had knowledge, held not a holder in due course. 16 CS 293. Test is not whether the plaintiff was negligent in acquiring the paper, but whether he acted in good faith. It is not the failure to inquire but the dishonest purpose which establishes bad faith. 18 CS 16. Consideration paid for a check is a question of good faith and inadequacy of consideration coupled with suspicious circumstances justifies a finding of bad faith. 19 CS 407.

      Annotations to present section:

      Cited. 182 C. 437. Cited. 187 C. 637. Cited. 207 C. 483. Cited. 240 C. 10.

      Cited. 4 CA 102. Trial court correctly concluded that plaintiff was a holder in due course. 49 CA 563. Note taken for value where exact amount of note is unknown because purchased in pool of loans. 51 CA 392.

      Former Subsec. (1):

      Subdiv. (b): Standard of good faith is a subjective standard. Evidence admissible to test holder's subjective good faith discussed. 187 C. 637. Cited. 242 C. 17.

      Bank which provisionally credits deposit against overdrawn account gives "value"; deposit as "value" discussed. 33 CS 641.

      Plaintiff bank, payee of note obtained from defendant consumers in freezer-food sale transaction, was holder in due course and four cases of prior complaints to bank by others did not change this rule where there was no complaint by this defendant at or before time bank took note. 4 Conn. Cir. Ct. 620. Statute does not require endorsement to be holder in due course but does require one to be "holder". 6 Conn. Cir. Ct. 546.

      Former Subsec. (2):

      Cited. 242 C. 17.

      Subsec. (a):

      Subdiv. (2)(iii) cited. 231 C. 441.