Holder in Due Course - Receive Instrument in Good Faith
Unaware of any Defenses to the Instrument
Written by J. Mance Gordon
Updated at April 19th, 2024
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What does it mean to receive an instrument in good faith?
Receiving an instrument in good faith means acting in accordance with reasonable commercial standards and honesty in fact (no fraudulent intent in receiving the instrument). A holder must meet two tests to determine if good faith is present:
Subjective Test - Did the holder believe the transaction was completed without the intent to defraud or deceive?
Objective Test - Would a reasonable person believe the transaction to be commercially reasonable?
Note: The determination of good faith looks only at the recipient of the instrument in the transfer. The intent of the transferor is not considered in determining whether the recipient becomes a holder in due course. Some courts have held that a transferee lacks good faith when she is closely associated with the transferor.
Related Topics
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What is the role of a Guarantor or Surety of a negotiable instrument?
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Surety
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