Holder and Holder In Due Course

A holder is an individual who is in possession of an instrument that is either payable to him or her as the payee, endorsed to him or her, or payable to the bearer. Those who obtain instruments after the payee are holders if such instrument is either payable to the bearer or endorsed properly to their order. The party in possession is not considered to be the holder in a case in which a necessary endorsement has been forged.

Introduction

The holder of a promissory note bill of exchange or cheque means any person entitled in his own name to the possession there of and to receive or receive the amount due. Thus a person who is in possession may or may not be a holder. However in due course means any person who for consideration becomes the possessor of a negotiable instrument.

Definition of holder

According to Sec 8.

“Holder of a promissory note, a bill of exchange or cheque means the payee or endorsee who is in possession of it or the bearer there of but it does not include a beneficial owner claiming through a Benamidar.

Conditions to be holder:

(i) He must be entitled to the possession.

(ii) He must be entitled to receive the amount.

(iii) He must be entitled to negotiate.

(iv) He must be entitled to sue.

Definition of holder in due course:

According to Sec 9.

‘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 it becomes overdue, without notice that the title of the person from whom derived his own titled was defective.

Conditions to be holder in due course:

Following are the condition to be holder in due course.

I. Holder:
Holder in due course must be entitled to the possession of the instrument in his own name under a legal title.

II. Lawful consideration:
He must be the holder of the instrument against the lawful consideration.

III. Complete instrument:
Instrument must be complete in all respects.

IV. Before maturity of the instrument:
In order to become holder in due course he must possess the instrument before its date of maturity. V. Good faith:
Holder in due course must get the instrument in good faith. Under the belief that the title of the transferee is not defective.

RIGHTS AND PRIVILEGES OF A “HOLDER IN DUE COURSE”

Following are the right and privileges of a holder in due course.

I. Better Title:

A holder is due course gets better title than the transferor while a holder cannot get a better title.

II. Transfer of Good Title:

A holder in due course also transfers a good title to the subsequent holders.

III. Incomplete Stamped Instrument:

If unstamped instrument is transferred to the holder in due course, he can claim the whole amount.

IV. Free From all Defects:

As the instrument passes through the hands of a holder in due course to the subsequent holders, it become free from all defects.

V. Validity of Instrument:

Executor of a negotiable instrument and acceptor of a bill of exchange for the honour of the drawer cannot deny the validity of the instrument.

VI. Fictitious Bill:

An acceptor of a bill of exchange drawn in a fictitious name and payable to the drawer’s order is not exempted from liability to any holder in due course by reason and such name being fictitious one.

VII. Conditional Instrument:

When one instrument is delivered for special purpose and not for the transfer of ownership this does not affect the holder in due course.

VIII. Payee’s Incapacity:

Maker of a note and acceptor of a bill payable order cannot deny the payee’s capacity, at the date of the note or the bill to endorsed it in a suit by holder in due course.

IX. Capacity of Prior Party:

No endorser of a negotiable instrument shall in a suit thereon by a subsequent holder, be permitted to deny the signature or capacity to contract for any prior party to the instrument.