[mr.yet]

§ 248 Status as holder; necessity of negotiation [11 Am Jur 2d BILLS AND NOTES]

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A holder in due course must be a holder. 56 Since "holder" is defined as either the person in possession of bearer paper or the person in possession of an instrument payable to an identified person if the person in possession is that identified person, 57 and since negotiation is defined as the transfer of possession of an instrument by a person other than the issuer to a person who thereby becomes a holder, 58 it follows that a person cannot be a holder in due course of an instrument by a transfer which does not amount to a negotiation. 59

When the transfer of commercial paper amounts to only an assignment, the transferee is by definition not a holder and cannot be a holder in due course. 60
Clearly, a person cannot be a holder in due course who lacks possession of the instrument. 61


Footnotes

Footnote 56. UCC §3-302(1) [1952]; UCC § 3-302(a) [1990 Rev].

Footnote 57. § 236.

Footnote 58. UCC § 3-202(1) [1952], UCC § 3-201(b) [1990 Rev], discussed in §§ 212 et seq.

Footnote 59. Ederer v Fisher (Fla App D2) 183 So 2d 39 (holding that the plaintiffs failed to establish genuine indorsement of the note by the payee to the transferee from whom plaintiffs purchased the note and, therefore, neither payee's transferee nor plaintiffs acquired the status of holder in due course).
The bank that took a mortgage on assignment without an indorsement of the mortgage note was not entitled to a claim as holder in due course. Second Nat'l Bank v G.M.T. Properties, Inc. (Fla App D3) 364 So 2d 59.
A bank could not become a holder in due course of a draft payable to two payees where there was lacking the necessary indorsement of one of the payees when the other payee deposited the draft with the bank, there being no valid statutory negotiation. Federal Deposit Ins. Corp. v Marine Nat'l Bank (5 Fla) 431 F2d 341, 7 UCCRS 1327.

Annotation: Fraud in the inducement and fraud in the factum as defenses under UCC § 3-305 against holder in due course, 78 ALR3d 1020.
Footnote 60. Tallahassee Bank & Trust Co. v Raines, 125 Ga App 263, 187 SE2d 320, 10 UCCRS 665; Ballengee v New Mexico Fed. Sav. & Loan Ass'n, 109 NM 423, 786 P2d 37, 11 UCCRS2d 124; Hewett v Marine Midland Bank, N.A. (2d Dept) 86 App Div 2d 263, 449 NYS2d 745, 33 UCCRS 1696.

Footnote 61. Western Nat'l Bank v Rives (Tex App Amarillo) 927 SW2d 681, reh overr (Tex App Amarillo) 1996 Tex App LEXIS 3651, writ den (Feb 21, 1997) and rehg of writ of error overr (Apr 10, 1997).