Ark. Code Ann. § 4-3-302 (2026)
Holder in due course
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Subject to subsection (c) and § 4-3-106(d), “holder in due course” means the holder of an instrument if:
- 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
- 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 § 4-3-306, and (vi) without notice that any party has a defense or claim in recoupment described in § 4-3-305(a).
- 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.
- 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.
- If, under § 4-3-303(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.
- 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.
- To be effective, notice must be received at a time and in a manner that gives a reasonable opportunity to act on it.
- This section is subject to any law limiting status as a holder in due course in particular classes of transactions.
History. Acts 1991, No. 572, § 5.
Research References
Ark. L. Notes.
Laurence, Bona Fide Purchaser Analysis, Beverage Products Corporation v. Robinson and the Case Against Very Short Opinions, 1990 Ark. L. Notes 85.
Ark. L. Rev.
Bills and Notes — The Original Payee's Non-Compliance With the Wingo Act as a Defense Against a Holder in Due Course, 25 Ark. L. Rev. 518.
Case Notes
Assignees of Notes.
The assignee of a note was a holder in due course. Rushton v. U.M. & M. Credit Corp., 245 Ark. 703, 434 S.W.2d 81 (1968) (decision under prior law).
Where the maker delivered blank notes to payee who assigned them to bank without maker's knowledge and these notes were neither overdue nor dishonored and received by bank in good faith, the bank was holder in due course. Byrd v. Security Bank, 250 Ark. 214, 464 S.W.2d 578 (1971) (decision under prior law).
Burden of Proof.
Surety had burden of proving that purported transactions concerning execution of note and mortgage which surety sought to foreclose were the genuine actions of corporate board before it could rely on this or any other provision of the UCC (subtitle 1 of this title). National Surety Corp. v. Crystal Springs Fishing Village, Inc., 326 F. Supp. 1171 (W.D. Ark. 1971) (decision under prior law).
Business Under Assumed Name.
Any violation of statutes restricting the transacting of business under an assumed name (§ 4-70-201 et seq.) was irrelevant to the issue of whether the holder receiving notes from company allegedly violating such sections was a holder in due course. Byrd v. Security Bank, 250 Ark. 214, 464 S.W.2d 578 (1971) (decision under prior law).
False Representations.
A bank payee was not disqualified from being a holder in due course by the fact that one of its vice-presidents induced the makers to borrow the money to purchase stock from him and others in a corporation which he falsely represented to be solvent and well-managed. City Nat'l Bank v. Vanderboom, 290 F. Supp. 592 (W.D. Ark. 1968), aff'd, 422 F.2d 221 (8th Cir.), cert. denied, 399 U.S. 905, 90 S. Ct. 2196, 26 L. Ed. 2d 560 (1970) (decision under prior law).
Good Faith.
Where a bank employee changed the handwritten amount portion on the check so that it was consistent with the sum set out by the impression of a check writing machine, the bank took the check in “good faith” and was a holder in due course because it was entitled to rely on the imprinted section of the check, and the “alteration” which reconciled the terms was not a sufficient basis to hold that the bank acted in other than good faith. Galatia Community State Bank v. Kindy, 307 Ark. 467, 821 S.W.2d 765 (1991) (decision under prior law).
Illegal or Void Transactions.
There can be no holder in due course of a negotiable instrument arising out of an illegal transaction. Pacific Nat'l Bank v. Hernreich, 240 Ark. 114, 398 S.W.2d 221 (1966) (decision under prior law).
Notice of Defenses.
The fact that one who accepts a cashier's check in satisfaction of an antecedent debt may suspect the creditor may be insolvent does not prevent the creditor's being a holder in due course. Nicklaus v. Peoples Bank & Trust Co., 258 F. Supp. 482 (E.D. Ark. 1965), aff'd, 369 F.2d 683 (8th Cir. 1966) (decision under prior law).
Where the defendant insurance company's draft contained all the elements of negotiability and was not drawn without recourse, and the evidence showed that the plaintiff bank did not have notice of any defense of the insurance company against the instrument, the bank was a holder in due course. Canal Ins. Co. v. First Nat'l Bank, 266 Ark. 1044, 596 S.W.2d 710 (Ct. App. 1979), aff'd, 268 Ark. 356, 596 S.W.2d 709 (1980) (decision under prior law).
Where assignor knew that the makers of note had claims against him far in excess of the amount of the note and assignee had notice that payments on the note were overdue at the time he took the note, assignee was not a holder in due course; therefore, the note was subject to the defense by the makers against assignor, and it was proper for the court to allow set-off, cancel and satisfy the note, and dismiss assignee's claim. Richardson v. Girner, 282 Ark. 302, 668 S.W.2d 523 (1984) (decision under prior law).
Assignee was not a holder in due course even though the note was not declared to be in default until after he contacted the maker; it is not necessary to have the holder of the note declare that it is in default when this fact is obvious in other ways. Richardson v. Girner, 282 Ark. 302, 668 S.W.2d 523 (1984) (decision under prior law).
Manner the holder came into possession of the bonds was so peculiar and out of the ordinary course of business as to put the holder on notice that he was not a holder in due course of the bonds under subsection (c) of this section, and the holder took possession of the bonds subject to any defenses that may have been raised. The holder could not have acquired any greater rights than what his predecessor-in-interest had, so any claims related to actions were waived before the holder acquired the bonds. Wilkins v. U.S. Bank, N.A., 514 F. Supp. 2d 1120 (W.D. Ark. 2007).
Payees.
A bank payee was not disqualified from being a holder in due course by the fact that one of its vice-presidents induced the makers to borrow the money to purchase stock from him and others in a corporation which he falsely represented to be solvent and well-managed. City Nat'l Bank v. Vanderboom, 290 F. Supp. 592 (W.D. Ark. 1968), aff'd, 422 F.2d 221 (8th Cir.), cert. denied, 399 U.S. 905, 90 S. Ct. 2196, 26 L. Ed. 2d 560 (1970) (decision under prior law).
Judgment was properly awarded to plaintiff in its action against defendant for payment of a cashier's check that was obtained with insufficient funds because plaintiff was a holder in due course under subdivision (a)(2) of this section when it accepted the cashier's check for payment of a home loan, an antecedent claim, after the homeowners refinanced the home. Southern Bank of Commerce v. Union Planters Nat'l Bank, 375 Ark. 141, 289 S.W.3d 414 (2008).
Pledgees.
Pledgees, in a securities transaction, were holders in due course and held their notes free from all defenses of any party with whom they had not dealt, except a defense based on illegality of the transaction which would render it a nullity. Lane v. Midwest Bancshares Corp., 337 F. Supp. 1200 (E.D. Ark. 1972) (decision under prior law).
Cited: Landreth v. First Nat'l Bank, 45 F.3d 267 (8th Cir. 1995); Terry v. Rice (In re Cheqnet Sys.), 246 B.R. 873 (Bankr. E.D. Ark. 2000).