Who is a Holder? Who is a Holder in Due Course?

Holder

The ‘Holder’ of a promissory note or bill of exchange or cheque means a person entitled in his own name to the possession of that instrument. He also has the right to receive or recover the amount due thereon from the parties to the instrument. Where the note or bill or cheque is lost or destroyed, its holder is the person who was entitled to be so at the time of such loss or destruction (section 8). 




The term ‘Holder’ does not include a person who though in possession of the instrument, has not the right to recover the amount due there on from the parties thereto. It is. therefore, clear that in order to be a holder a person must satisfy the following two conditions

a) He must be entitled to the possession of the instrument in his own name.

b) He must be entitled to recover the amount due on the instrument from the parties liable under the instrument.

The holder of a negotiable instrument can give title to any person honestly acquiring it. It is the very essence of a negotiable instrument that the person in possession of it may he treated as having authority to deal with it. unless something is known to the contrary.

A benamidar is a person who has simply lent his name as the real owner. The Act does not recognise such a practice and, therefore, the person whose name is mentioned, whether real or benami, is to he held the holder.

The significance of the ‘holder’ also lies in the fact that the Act states that payment of the amount due on a negotiable instrument’ must in order to discharge the maker or acceptor, be made to the ‘holder’ of the instrument (section 78). The holder, therefore, is the only person who can sue upon the instrument, and can give a valid discharge for it.

 

Holder In Due Course

Who is a Holder in Due Course?

Section 9 defines “holder-in-due-course as any person who for consideration became 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 become payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title”

From the above definition, the essential qualifications of the holder in due course may be stated as follows:

1) It is necessary that the holder should have acquired the instrument for valuable consideration and in good faith. The consideration for the note or bill should be lawful. The title of a person who negotiates a bill or a note is defective when, for instance, he obtains the instrument or acceptance thereof by fraud, duress, force, fear or other unlawful means or for illegal consideration. No person can claim title to any negotiable instrument through a forged endorsement except in the case of a banker making a payment in due course.

2) It is necessary in the case of an instrument payable to bearer that the holder in due course is in possession of it.

3) The holder must have obtained the instrument before maturity. Once an instrument payable before a fixed period of time reaches its maturity, it has exhausted its life and is no more negotiable. An instrument payable on demand is current at least as long as no more negotiable. The law of limitation is applicable in the case of a promissory note. The banks insist that a cheque should be encashed within three months of the date of its issue.

4) The instrument should be complete and regular on the face of it. It is the duty of every person who takes a negotiable instrument to examine its form for if it contains any material defect, he will not become a holder-in-due-course.

5) The holder should have received the instrument in good faith. There are two possible methods of ascertaining whether a person has good faith or not. One method is testing the person’s intentions or motives and the other method is to find out whether he took due care and caution.

To sum up, if a person is to be called or treated as a holder-in-due-course, he must show:

a) that he became the possessor of the promissory note. bill of exchange or cheque, if payable to bearer: i) before the amount mentioned in it became payable; and ii) without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title: or

b) that he became the payee or endorsee of the promissory note, bill of exchange, or cheque, if payable to order: i) before the amount mentioned in it became payable; and ii) without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

A holder who derives his title from a holder in due course has the rights of a holder in due course.

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