§ 34.1-3-302 — Holder in due course

(a) Subject to subsection (c) and section 34.1-3-106(d),
"holder in due course" means the holder of an instrument if:
(i) 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
(ii) The holder took the instrument (1) for value,
(2) in good faith, (3) 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, (4) without notice that the instrument
contains an unauthorized signature or has been altered, (5)
without notice of any claim to the instrument described in
section 34.1-3-306, and (6) without notice that any party has a
defense or claim in recoupment described in section
34.1-3-305(a).
(b) 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.
(c) 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
(1) by legal process or by purchase in an execution, bankruptcy,
or creditor's sale or similar proceeding, (2) by purchase as
part of a bulk transaction not in ordinary course of business of
the transferor, or (3) as the successor in interest to an estate
or other organization.
(d) If, under section 34.1-3-303(a)(i), 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.
(e) If (1) the person entitled to enforce an instrument
has only a security interest in the instrument and (2) 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.
(f) To be effective, notice must be received at a time and
in a manner that gives a reasonable opportunity to act on it.
(g) This section is subject to any law limiting status as
a holder in due course in particular classes of transactions.