Transferability and Holder in Due Course

Introduction

Negotiable instruments can be transferred to others by negotiation or by assignment.

Negotiation

Transfer by negotiation creates a holder, who at the very least receives the rights of a previous possessor.      

AND

A holder in due course (HDC) acquires more rights in the instrument than the previous possessor. This means defenses that can be raised against the transferor may or may not be able to be raised against the transferee.

Two Ways to Negotiate

Negotiating Order Instruments endorsement and delivery required.

Negotiating Bearer Instruments—delivery only.

§ Converting Order to Bearer and vice versa.

Converting Order Instruments to Bearer Instruments, and Vice Versa.

§ Must be done at the time of negotiation.