Holder in due course

A holder in due course (어음·수표의 정당한 소지인/正當 所持人) is the holder of a negotiable instrument that is complete and regular on its face. The instrument is required to be taken:
 * in good faith and without gross negligence,
 * without notice of any defect in title that it is overdue or has been dishonored, or
 * that there is any defense against it or claim to it by any party.

A holder in due course takes the negotiable instrument free of any claims to it and of most defenses of a party to it. As a matter of law, it is bona fide acquisition (선의취득/善意取得) of an instrument.

Key words
holder in due course (HDC), bona fide acquisition, series of endorsement, in good faith, gross negligence

Statutory ground
Bona fide acquisition of a bill of exchange or a promissory note is regulated by the Bills of Exchange and Promissory Notes Act (어음법) In case of a check, Article 21 of the Check Act (수표법) is applicable.

At first, the Act provides for the holder in due course of a bill of exchange. Article 16 (2).

Then the above provision apply mutatis mutandis to a promissory note. Article 77 (1).

Article 16 (Effect of Endorsement Establishing Title and Bona Fide Acquisition) of the Act
 * (1) The possessor of a bill of exchange shall be deemed to be the lawful holder if he establishes his title to the bill through an uninterrupted series of endorsements, even if the last endorsement is in blank. In this connection, cancelled endorsements shall be deemed not to be written. When an endorsement in blank is folloed by another endorsement, the person who signed this last endorsement shall be deemed to have acquired the bill by the endorsement in blank.
 * (2) Where a person has been dispossessed of a bill of exchange, in any manner whatsoever, the holder who establishes his right thereto in the manner mentioned in the preceding paragraph shall be not bound to give up the bill unless he has acquired it in bad faith, or unless in acquiring it he has been guilty of gross negligence.

Article 77 (Application of Provisions on Bill of Exchange)
 * (1) The following provisions relating to bills of exchange shall apply mutatis mutandis to promissory notes so far as they are not inconsistent with the nature of these instruments:
 * 1. Endorsement (Articles 11 through 20)
 * 2 - 9. Omitted.

Article 21 (Check Acquired in Good Faith) of the Check Act
 * Where a person has, in any manner whatsoever, been dispossessed of a check, whether it is a check to bearer or a check transferable by endorsement to which the holder establishes his right in the manner mentioned in Article 19 (Effect of Endorsement Establishing Title), the holder into whose possession the check has come shall not be bound to give up the check unless he has acquired it in bad faith or unless in acquiring it he has been guilty of gross negligence.

Requirements
In the context of negotiable instruments, a holder in due course must have acquired the bill or note, which appears to be complete and regular, in good faith and without gross negligence from a person with defect in title. Compared to bona fide acquisition of a personal property, peaceable and open assignment, nor light negligence are not required. The special provision on stolen or lost articles is not applicable to negotiable intruments. Articles 250 and 251 of the Civil Act.
 * The holder must have acquired the note in a manner as provided by the Act i.e., endorsement and delivery.
 * The series of endorsements shall be apparently uninterrupted.
 * The assignee must have an independent economic interest on the note.
 * The note should have been acquired from a person with any defect in title.
 * The holder must have acquired the note in good faith and without gross negligence.

HDC is King of a negotiable instrument
The rights of a holder in due course of a negotiable instrument are qualitatively, as matters of law, superior to those provided by ordinary species of contracts.

The rights to payment are not subject to set-off, and do not rely on the validity of the underlying contract giving rise to the debt (for example if a check was drawn for payment for goods delivered but defective, the drawer is still liable on the check). No notice need be given to any party liable on the instrument for transfer of the rights under the instrument by negotiation.

Transfer free of equities — the holder in due course can hold better title than the party he obtains it from (as in the instance of negotiation of the instrument from a mere holder to a holder in due course). Negotiation often enables the transferee to become the party to the contract through a contract assignment (provided for explicitly or by operation of law) and to enforce the contract in the transferee-assignee’s own name.

Negotiation can be effected by endorsement and delivery (order instruments), or by delivery alone (bearer instruments). In addition, the rights and obligations accruing to the transferee can be affected by the rule of derivative title, which does not allow a property owner to transfer rights in a piece of property greater than his own.