HOLDER AND HOLDER IN DUE COURSE OF NEGOTIABLE INSTRUMENTS

Holder and Holder in due course are two terms associated with the possession of a negotiable instrument. They are different in many ways.

Section 8 of The Negotiable Instruments Act,1881 provides the definition of a ‘Holder’. The “holder” of a promissory note, bill 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 thereto. So a holder must have mainly two essentials, that is, the possession of the instrument and the right to recover the money. If a person find a lost instrument, or a person steal a negotiable instrument, it does not make them a holder. Because they don’t have the right to recover the money.

Section 9 of the same act defines ‘holder in due course’ as – “Holder in due course” means 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 indorsee thereof, if [payable to order,] before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. So a holder in due course may become the holder of the instrument before it’s get matured and he or she should hold the instrument for a valuable consideration.

Holder in due course has some privileges or rights. According to Section 53 of The Negotiable Instruments Act, holder in due course gets a good title to the instrument even though the title of the transferor or any price party to the instrument is defective. He can recover the full amount unless he was a party to fraud, or if the instrument is negotiated by means of a forged endorsement. Section 20 of the said act provides that he would gets a good title even though the instruments were originally stamped but was an inchoate instrument. Every prior party to the instrument us liable to the holder in due course until the instrument is satisfied and the parties liable to pay cannot plead that the delivery of the instrument was conditional or for a specific purposes only.

Holder and holder in due course are two different persons. They are different in many ways.

1.Maturity

A holder may acquire the instrument even after its maturity. But a holder in due course must acquire the instrument before the date of maturity. Otherwise he won’t get the rights of a holder in due course

2.Consideration

Consideration is an essential ingredient in holder in due course, but it is not necessary to become a holder. Holder may acquire the instrument by way of gift or donation.

3.Entitlement

Holder is entitled to the possess the instrument in his own name and he can recover the amount. But holder in due course is a person who got the possession for a consideration.

4.Privileges

A holder in due course enjoys certain privileges under Negotiable Instruments Act, which are not available to a holder.

5.Right to recover amount

A holder has the right to recover amount only from whom he has got the instrument, but a holder in due course has the right to recover from any prior parties.

6.Title

A holder does not acquire a better title than that of transferor. But a holder in due course has better title than that of transferor. He derives a good title freed from all defects.

References

Differences between Holder & Holder-In-Due-Course

Negotiable Instruments Act, 1881

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