Are you up for looking holder in Due Course of a Negotiable Instrument? Here you will have a complete detail about it.
The holder of the promissory note, bill of exchange or cheque means the payee or endorsee who is in possession of it or the bearer, thereof and who receives or recovers the amount due thereon from the parties thereto.
When the bill, note or cheque is destroyed or lost, the person who has the possession of the instrument at the time of such loss or destruction, Sec. 8.
From the above-mentioned definition, we find that the holder means any person who is entitled to his own name the possession of the instrument and has a right to get the payment of instrument or who can sue for recovery of the amount against the defaulter.
See Also: What is Endorsement of Negotiable Instrument
So the payee or the endorsee or the bearer can be the holder of the instrument. The person who has illegally or fraudulently got the possession of bill, note or cheque cannot be the holder. Therefore, the following are the persons who may be the holder.
- A person who is entitled to his own name the possession of the instrument
- The person who has the right to receive the amount of the instrument
- The person who can sue with his own name for the recovery of the amount
Illustration
X draws a bill on Y payable to Z for Rs. 5000, Y accepts it and bi is handed over to 7 in such a case Z will be the holder of the bill.-W further, assume that Z endorses it over to his creditor P and delivers the bill to him.
Now P will be the holder of the bill. If a bill is lost before the maturity- and is found by the Q, under this case Q cannot be the holder of the bill but still, P is the holder who is the last possessor of the instrument.
Holder in Due Course of a Negotiable Instrument
“Holder in due course means any person who for consideration becomes the possessor of a promissory note, bill of exchange or cheque if payable to bearer or the payee or endorsee thereof, if payable to order, before the amount mentioned in it becomes payable, without notice that the title of the person from whom he derived his own title was defective.
Holder in due course is a person who for the valuable consideration receives the possession of the bill, cheque or note before the maturity date and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
Requirements for Holder in due Course
A person can claim to be a holder in due course if he fulfills- the following conditions:
- He must be the holder of the instrument.
- He has given valuable consideration before he becomes the possessor of the instrument.
- He has become the holder of the instrument in good faith before the date of maturity.
- He has no sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.
Illustration
“A draws a bill of exchange on B for Rs. 2000 payable to C two months after date. We suppose that C has given valuable consideration to A.
So C is holder in due course provided that he has received the bill before the maturity and has no sufficient cause to believe that A’s title is defective.
If C endorses the bi// to D then D will be the holder in due Course provided that he has received the instrument before the maturity and has no sufficient cause to believe that C’s title is defective and he has given Valuable consideration to C.
Privileges to the Holder in Due Course
A holder in due course enjoys the following privileges and rights:
BLANK INSTRUMENT
When one person signs and delivers to another a paper stamped in accordance with the law but is wholly blank or incomplete.
The holder in due course has a right to complete it up to the amount covered by the stamp, ‘the person so signing shall be liable for the instrument Sec, 20.
PRIOR PARTIES LIABLE
All the prior parties of the negotiable instrument are liable to the holder in due course until it is duly satisfied.
The holder in due course can sue against any prior party (The maker, acceptor or endorser) for the recovery of the amount with his own name Sec, 36.
FICTITIOUS NAME
When a bill of exchange is drawn payable-to the drawer’s order in a fictitious name and has been endorsed by the drawer, the acceptor is liable to make payment to the holder in due course Sec. 42.
Illustration
A bill is drawn by A on B and accepted by the later which is payable to Z who is not a real or legal person (fictitious ‘name), and endorsed by A to C against value received. The B is liable to make payment to C as C is a holder in due course.
CONDITIONAL DELIVERY
When an instrument is negotiated to a holder in due course, the other parties to the instrument cannot be relieved from liability on the ground that the delivery of the instrument was conditional or for a special purpose only Sec. 46.
See Also: Difference between Cheque and Bill of Exchange
Illustration
A delivers an instrument to B for safe-custody but B transfers it to C for value received. As C is a holder in due course.
So he has a right to get the payment of the instrument even though the delivery of instrument from A to B was conditional (For safe-custody),
BETTER TITLE THAN PRIOR PARTY
A holder who derives title through a holder in due course and who is not a party of any fraud or illegality, has all the rights of the holder in due course even through the title of any of the prior parties was defective.
So the holder in due course and every subsequent party get a better title than the prior party Sec. 53.
Illustration
A receives an instrument from B by fraud and endorses it to C for valuable consideration. As the C is a holder in due course so his title is good even though the as title is defective provided that C has no knowledge of as fraud.
DEFECTIVE TITLE
When a negotiable instrument has been lost or has been obtained from any maker, drawer, acceptor or holder thereof by means of offence or fraud or for an unlawful consideration, neither the person who finds or so obtains nor any possessor is entitled to receive the amount due there 6n unless he is a holder in due course Sec, 58.
Illustration
B finds a bill of exchange and delivers it to C against value received. The C is entitled to receive the payment of the bill even though the title of B is defective.
EVERY HOLDER IS A HOLDER IN DUE COURSE
The law presumes that every holder of the negotiable instrument is a holder in due course provided that the instrument has been obtained by means of an offense or fraud, or for unlawful consideration, the burden of providing that the holder is a holder in due course lies upon him Sec. 118.
VALIDITY OF THE INSTRUMENT
No maker of the promissory note and no drawer of a bill of exchange and cheque and no acceptor of the bill of exchange for the honor of the drawer, shall, in a suit thereon by a holder in due course, be permitted to deny the validity of the instrument as originally made or drawn Sec, 120.
CAPACITY OF PAYEE TO ENDORSE
No maker of the promissory note and no acceptor of a bill of exchange payable to order shall, in a suit thereon by a holder in due Course be permitted to deny the payee’s capacity at the date of the bill to endorse the same.
