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HOLDER AND HOLDER IN DUE COURSE
QUESTION BANK.
Q.1. Distinguish between ‘holder’ and ‘holder in due course’ of a negotiable instrument.
Q.2. Who is a ‘holder in due course’? What are his special rights and privileges?
SHORT NOTES.
- Holder in due course.
- Rights and privileges of holder in due course.
- Holder and holder in due course. Apr. 05.
SYNOPSIS
- INTRODUCTION:-
- HOLDER IN DUE COURSE (S. 9):-
Essential conditions of holder in due course:-
1) Consideration:-
2) Before maturity:-
3) Complete and regular:-
4) Good Faith:-
III. RIGHTS AND PRIVILEGES OF HOLDER IN DUE COURSE:-
1) Presumptions (S. 118):-
2) Inchoate stamped instrument (S. 20):-
3) Fictitious Drawer or payee (S. 42):-
4) Prior defects (S. 58):-
5) Indorsee from holder in due course (S. 53):-
I. INTRODUCTION:-
In English Law, “holder[1]’ is defined as the payee or indorsee of a bill or a note, who is in possession of it, or the bearer. Hence holder means either the bearer or indorsee of an instrument. Thus,‘holder’ means either the bearer or indorsee of an instrument. If the instrument is a bearer instrument or is indorsed in blank, any person who is in possession of it, even though by theft, is a holder; if the instrument is payable to a specified person or is ordered, any person who is named therein as a payee or indorsee is a holder if he is also in possession of the instrument. Under the Negotiable Instrument Act 1881, ‘a holder’ is a person ‘entitle in his own name’ to the possession of the instrument and to recover its amount (S. 8).
The word ‘entitled in his own name’ indicates that the term ‘holder’ means only a legal (de jure) holder and not a holder in fact (de facto holder). The term holder does not include a beneficial owner, nor does it include a person who is in possession of the instrument but the person who has the right to recover the amount due thereon.
In Sarjoo Prasad V. Rampayari Devi[2]
Fact: – The Plaintiff advanced a sum of money to the defendant under a hand note. The note was executed not in the name of the Plaintiff but by one X, who was merely a name leader (benamidar). On maturity, Plaintiff brought an action against the defendant to recover the amount.
Held– Plaintiff was not entitled to the possession of the note ‘in his own name’ and therefore was not the holder.
II. HOLDER IN DUE COURSE[3] (S. 9):-
The general principle of law is that ‘no person can transfer better title than he himself has’ (Nemo debt quod non habit), but Holder, in due course, is an exception to it. A person taking a negotiable instrument in good faith and for value obtains a valid title though he takes from one who had no title or who was merely a thief. Such a person is called a holder in due course
Essential conditions of the holder in due course:-
1) Consideration:-
The holder must have taken the instrument for value. A negotiable instrument contains a contract, so there should be a consideration. A person taking a cheque, bill or note without consideration can not enforce it.
2) Before maturity[4]:-
He must have obtained the instrument before maturity. If a bill, note, or cheque is taken after it is due (that is, payment not received), the person taking it takes it at his peril. Such a holder can have no better title to the instrument than the party from whom he takes it and, therefore, can not recover upon it if it turns out that the instrument was previously lost or stolen.
3) Complete and regular:-
The instrument must be complete and regular on its face. It is the duty of every person who takes a negotiable instrument to examine its form or face. It is because if it contains any material defect, he will not become a holder in due course.
4) Good Faith:-
The holder must have taken the instrument in good faith and without notice of any defect either in the instrument or in the title of the person negotiating it.
III. RIGHTS AND PRIVILEGES OF HOLDER IN DUE COURSE:-
1) Presumptions (S. 118):-
Every holder of a negotiable instrument is presumed to have paid consolidation for it and to have taken it in good faith. In other words, the presumption is read in favour of the holder that every holder is deemed prima facie to be a holder in due course.
2) Inchoate stamped instrument[5] (S. 20):-
According to this section, when an instrument is-
- a) duly signed and stamped,
- b) but is either left wholly blank or incomplete in some material requirements, such as date, amount or name of the payee, and
- c) such an instrument is delivered by one person to another for the purpose of filling it up as a negotiable instrument, and
- d) the person so entrusted, or any holder of such instrument fills in an amount exceeding that which he was authorised to fill up, the holder, in due course of such an instrument, can recover the full amount for which it has been filled up, provided the stamp is sufficient to cover that amount.
3) Fictitious[6] Drawer or payee (S. 42):-
The acceptor of a bill of exchange can not, as against the holder in due course, say that the other parties to the bill were fictitious.
4) Prior defects[7] (S. 58):-
The party liable to pay an instrument can not, as against a holder in due course, contend that he had lost the instrument or that it was obtained from him by means of an offence or fraud or for an unlawful consideration.
5) Indorsee from the holder in due course (S. 53):-
A holder of a negotiable instrument who derives title from a holder in due course has the right thereon of the holder in due course.
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[1] दस्ताऐवजाचा धारक. [दस्तावेज़ धारक।]
[2] (AIR 1950 Pak 493)
[3] योग्य प्रक्रियेतून धारक. [उचित प्रक्रिया के माध्यम से धारक।]
[4] देय तारखे अगोदर. [नियत तारीख से पहले।]
[5] अपूर्ण कंवा अपरिपक्क दस्ताऐवज. [अधूरे या अपरिपक्व दस्तावेज।]
[6] दस्ताऐवज काढणार अथवा मिळविणारा बनावट. [दस्तावेज़ को हटाने या प्राप्त करने के लिए एक जालसाजी।]
[7] पूर्वीचा दोष [पिछला दोष]