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Holder and Holder in Due Course

A holder is anyone entitled to possession of a negotiable instrument in their own name and to receive payment from parties liable. To be a holder in due course, one must be a holder who acquired the instrument for consideration before maturity and without knowledge of title defects. Key differences are that a holder may acquire the instrument before or after maturity, with or without consideration, and does not have a better title than the transferor, whereas a holder in due course must acquire it before maturity for consideration and receives better title than the transferor.

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282 views7 pages

Holder and Holder in Due Course

A holder is anyone entitled to possession of a negotiable instrument in their own name and to receive payment from parties liable. To be a holder in due course, one must be a holder who acquired the instrument for consideration before maturity and without knowledge of title defects. Key differences are that a holder may acquire the instrument before or after maturity, with or without consideration, and does not have a better title than the transferor, whereas a holder in due course must acquire it before maturity for consideration and receives better title than the transferor.

Uploaded by

Sharia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Holder (Sec.

8)

 The „holder‟ of a negotiable


instrument means any person
entitled to the possession of the
instrument in his own name and to
receive or recover the amount due
thereon from the parties liable
thereto (Sec.8).
Thus, in order to be called a „holder‟ a person must
satisfy the following two conditions:

I. He must be entitled to the possession of the


instrument in his own name:

In order to be entitled to the instrument


in his own name, the holder must be
named in the instrument either as the
payee or the endorsee , in case the
instrument is payable to order, or he
must be the bearer in case the
instrument is payable to bearer.

II. He must be entitled to receive or recover the


amount due thereon from the parties liable thereto.
 The word “entitled” used in the definition
of a holder shows that the title of the
person who claims to be the holder must
be acquired in a lawful manner.

 Thus, a person who has obtained


the possession of an instrument
by theft or under a forged
endorsement is not a holder as
he is not entitled to recover the
amount of the instrument.
Holder in due course
 The ‘holder in due course’ means any person
who for consideration becomes the possessor of
a negotiable instrument if payable to bearer, or
the payee or indorsee thereof if payable to
order, before the amount mentioned in it became
payable, and without sufficient cause to believe
that any defect existed in the title of the person
from whom he derived his title (Sec. 9).
 Thus, in order to be called a ‘holder in due
course’ a person must possess the following
specifications:

 He must be a „holder‟. i.e., he must be entitled to the


possession of the instrument in his own name under a legal
title and to recover the amount thereof from the parties liable
thereto.

 He must be a holder of valuable consideration, i.e., there must


be some consideration to which law attaches value.

 He must have become the holder of the negotiable instrument


before its maturity.

 He must take the negotiable instrument complete and regular


on the face of it.

 He must have become holder in good faith.


Difference between Holder and Holder in
Due Course
Basis of difference Holder Holder in Due course
Entitlement A holder is one who is A holder is one who
entitled in his own name to means the person who for
the possession of the consideration became the
instrument and to receive possessor of the
or recover the amount due instrument before its
thereon from the parties maturity and without
thereto. having any notice of the
defect of the title of the
person from whom he
obtained it.

Consideration He may acquire the He acquires instrument


instrument before or after with consideration.
maturity
Basis of difference Holder Holder in Due course

Maturity He may acquire the He may acquire the


instrument before or instrument before the
after the maturity maturity

Better Title He can‟t have a better He gets a better title


title than that of than that of transferor.
transferor.

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