                                 CODE OF VIRGINIA

HOLDER IN DUE COURSE (§ 8.3A-302)

a. Subject to subsection (c) and § 8.3A-106 (d), &#8220;holder in due
course&#8221; means the holder of an instrument if:

   1. 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

   2. the holder took the instrument (i) for value, (ii) in good faith, (iii)
   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, (iv) without notice that the instrument
   contains an unauthorized signature or has been altered, (v) without notice of
   any claim to the instrument described in &#xA7; 8.3A-306, and (vi) without
   notice that any party has a defense or claim in recoupment described in &#xA7;
   8.3A-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 (i) by legal process or by purchase in an execution,
bankruptcy, or creditor&#8217;s sale or similar proceeding, (ii) by purchase as
part of a bulk transaction not in ordinary course of business of the transferor,
or (iii) as the successor in interest to an estate or other organization.

d. If, under &#xA7; 8.3A-303 (a) (1), 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 (i) the person entitled to enforce an instrument has only a security
interest in the instrument and (ii) 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.

HISTORY: Code 1950, §§ 6-404, 6-408; 1964, c. 219, §§ 8.3-302, 8.3-304;
1992, c. 693.