Question

Cynthia negotiates an instrument to Helena who promises to pay its face value as soon as her income tax refund comes in. Helena acquires the status of an HDC when she

	a.	agrees with Cynthia to buy the negotiable instrument.
	b.	transfers the instrument to Joseph for value and in good faith.
	c.	meets Cynthia at the bank to discuss the deal in person.
	d.	pays the face value due on the instrument.

Answer 1

One of the conditions for a given holder to be regarded as a holder in due course (HDC) is that the concerned person should have taken the negotiable instrument in question for value, instead of receiving it as a gift or otherwise without paying equal compensation to the concerned party from whom the holder has obtained the negotiable instrument. As Helena has promised to pay the face value of the instrument once her refund for income tax is received by her, she is considered to have not taken the instrument for value until such time such promise is fulfilled. Till such time, the transaction is considered as unequal and the holder is not regarded as a HDC. Hence, option d) is correct as Helena would not be regarded as a HDC till she pays the face value due on the instrument.