Rights of an Assignee Vs. a Holder in Due Course

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An assignment involves stepping into another person's shoes.
An assignment involves stepping into another person's shoes. (Image: Jupiterimages/Photos.com/Getty Images)

The Uniform Commercial Code covers the rights of both an assignee and a holder in due course. The UCC's purpose is to "(1) simplify, clarify, and modernize the law governing commercial transactions; (2) to permit the continued expansion of commercial practices through customs, usage, and agreement of parties; and (3) to make uniform the law among the various jurisdictions."

Article 2

Assignments occur in the context of a contract. UCC Article 2 governs contracts for the sale of goods and establishes an assignee's rights. According to Article 2, goods are movable items such as crops, animals and manufactured items. Land, for example, does not constitute a good, because land isn't movable. Lumber cut from trees located on the land may, however, constitute goods for Article 2 purposes if it's the subject of a sales transaction.

Assignee

An assignee is someone who steps into the shoes of another person and accepts any rights that person is entitled to under a contract. For example, if Joe agrees to sell Tom 100 screwdrivers, and Tom subsequently assigns his rights to Tammy, then Tammy now has the right to receive the 100 screwdrivers from Joe. If Joe doesn't deliver the screwdrivers as agreed, Tammy has the same right to enforce the agreement as Tom.

Article 3

A holder in due course arises in the context of a transaction involving a negotiable instrument. UCC Article 3 governs negotiable instruments and sets forth a holder in due course's rights. According to the UCC, a negotiable instrument is "an unconditional promise or order to pay a fixed amount of money..." A negotiable instrument must also meet other requirements, such as being payable at a definite time. Negotiable instruments exist to facilitate the transfer of money. A check is an example of a negotiable instrument.

Holder in Due Course

A holder in due course is someone who has the right to enforce the payment of a negotiable instrument in spite of the existence of facts that would keep someone who wasn't a holder in due course from enforcing the payment. For example, Tonia paid Marie $50 to give Tonia's daughter a piano lesson at a later date. Prior to the planned piano lesson, Marie signed the check over to her beautician, Pam, as payment for a new hairstyle. If Marie doesn't give Tonia's daughter the piano lesson, Tonia must -- assuming Pam didn't know about the impropriety -- still honor the check if Pam presents it for payment, because Pam is a holder in due course. Tonia would simply have to pursue Marie for recovery of the funds.

Warning

Individuals seeking legal advice should consult a licensed attorney in their state.

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