holder in due course

holder in due course

A party who acquires possession of an instrument (usually a check,promissory note,or installment sale contract) after giving value for it,in good faith,and without notice that there are any defenses; the holder in due course takes free of any claims. It was common at one time for health clubs,home improvement companies,vinyl siding installers,and many others to provide financing for their customers.The company would then sell the promissory notes to a holder in due course.When the consumer complained of high-pressure sales tactics,services inferior to those represented,or shoddy workmanship and refused to continue making payments,the holder in due course would sue and win a judgment because it was not subject to any defenses against the original party. State legislation has now exempted purchasers of consumer contracts from holder in due course status, so that defenses good against the original party are also good against the purchaser of the paper.There is still a very lively industry in buying consumer paper, but purchasers now include clauses making the purchase with recourse, meaning that if the consumer asserts any defenses, the original contracting party must buy the paper back and deal with the consumer directly.