Question

Sue sells Donna a used car for $3,000. Donna gives Sue $1,000 cash and a demand promissory note for $2,000 with interest at 6% per annum. Sue endorses the note over to her credit union which pays Sue $1,700 for the note. Is the credit union a holder in due course? Why or why not?

Answer 1

No, Credit Union is not a holder in due course, because the credit union is deemed to beholder for the instrument and after endorsement, Credit Union should have paid $2000 to sue. A demand promissory note is a written commitment to pay the maturity amount (if interest is there) once the instrument is matured. It can be presented before maturity too and in that case, the maturity amount will be calculated on the basis of the number of days elapsed since it was issued. In this case, the payment is less than the face value and the further reason why it was paid for lower value is not given. Hence, assuming that the full payment has not been realized for a promissory note in question, sue is still the holder of promissary note.