A. What constitutes value for the purposes of becoming a holder in due course? How does value for this purpose differ from consideration under contract law? b. What is good faith under the Code?
a. Value, for purposes of negotiable instruments, is 1. the actual performing of the agreed promise; 2. the acquiring of a security interest or other lien in the instrument other than a judicial lien; 3. the taking of the instrument in payment of or as security for an antecedent debt; 4. the giving of a negotiable instrument; and 5. the giving of an irrevocable obligation to a third party. Executory promises are valid consideration to support a contract, but they are not the giving of value to support holder in due course status because the promise has yet to be performed.
b. Good faith is honesty in fact and the observance of reasonable commercial standards of fair dealing. Revised Article 3 adopts a definition of good faith that has both a subjective and objective component. The subjective component (honesty in fact) measures good faith by what the purchaser knows or believes. The objective component (the observance of reasonable commercial standards of fair dealing) is comparable to the definition of good faith applicable to merchants under Article 2. Buying an instrument at a discounted price does not demonstrate lack of good faith.
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