Holder and Holder in Due Course - Meaning, Rights & Priviledges and Difference, Negotiable Instruments Act 1881 Notes

Holder and Holder in Due Course

Meaning, Rights & Priviledges and Difference

Negotiable Instruments Act 1881 Notes

Holder and Holder in due course

According to Section 8 of the Negotiable Instrument Act, 1881, “Holder of a promissory note, bills of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties there to.”

According to Section 9 of the Negotiable Instrument Act, 1881, “Holder in due course means any person who, for consideration, become 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 became payable and without having sufficient course to believe that defect existed in the title of the person from whom he derived his title.”

A person is said to be holder in due course in the following cases:

a)       A negotiable instrument must be in the possession of the holder-in-due-course.

b)      A negotiable instrument must be regular and complete in all aspects.

c)       The instrument must have been obtained for valuable consideration.

d)      The instrument must have been obtained before the amount mentioned therein becomes payable or before maturity.

The Holder of a Negotiable Instrument enjoys the following rights:

a)       He can claim payment of the instrument and can sue in his own name on the instrument.

b)      An endorsement in blank may be converted by him into an endorsement in full.

c)       He is entitled to cross a cheque either generally or special and also with the words “Not Negotiable”.

d)      He can negotiate a cheque to a third person, if such negotiation is not prohibited by the direction given in the cheque.

e)      A duplicate copy of a lost cheque may be obtained by a holder.

Holder in Due Course enjoys the following rights and privileges:

a)       He possesses better title free from all defects: He always possesses better title than that of his transferor or any of the previous parties and can give to the subsequent parties the good title that he possesses. The holder in due course is entitled to recover the amount of the instrument from any or all of the previous parties.

b)      All prior parties liable: All prior parties to the instrument i.e. its maker or drawer, acceptor or endorser, is liable thereon to a holder in due course until the instrument is duly satisfied. The holder in due course can file a suit against the parties liable to pay in his own name.

c)       No effect of conditional delivery: Where a negotiable instrument delivered conditionally or for a special purpose and is negotiated to a holder in due course, a valid delivery of it is conclusively presumed and he acquires good title to it.

d)      Right in case of fictitious bills: Where both drawer and payee of a bill are fictitious persons, the acceptor is liable on the bill to a holder in due course.

e)      Right of the holder in due course in case of inchoate instrument: If a negotiable instrument was originally an inchoate (incomplete) instrument and subsequent transferor completed the instrument for a sum greater than what was the intention of the market, the right of a holder in due course to recover the money of the instrument is not at all affected.

f)        Right is cane the instrument is obtained by unlawful means or for unlawful consideration: A person liable on negotiable instrument cannot denied himself against payment to a holder in due course on the ground that the instrument was lost or obtained from him by means of an offense or fraud or far an unlawful consideration.

g)       Estoppel against endorser to deny capacity of prior parties: The endorser of a negotiable instrument in a suit thereon by the holder-in-due-course cannot deny the signatures or capacity to contract of any prior party to the instrument.

Distinction between “Holder” and “Holder in due course”

Basis	Holder	Holder in Due Course
Meaning	Holder means any person entitled in his own name to the possession of the negotiable instrument and to recover or receive the amount due thereon from the parties thereto.	A holder in due course means a holder who takes the instrument in good faith for consideration before it is overdue and without any notice of defect in the title of the person who transferred it to him.
Consideration	The existence of consideration is not essential in case of a holder.	The existence of consideration in essential in case of a holder in due course.
Title in good faith	A Holder may or may not obtained title in good faith.	A Holder in due course obtained the title in good faith.
Maturity	A person can become holder, before or after the maturity of negotiable instrument.	A person will be a holder in due course only before the maturity of negotiable instrument.
Right to sue	A holder cannot sue all prior parties.	A holder in due course can sue all prior parties.