Holder and Holder in due course
Holder: Holder is defned in Section Section 8 as: as:
“The holder’ o a promissory note, bill o exchange or cheque means any person entitled in his on name to the possession thereo and to recei!e or reco!er the amount due thereon rom the parties thereto"
#here the note, bill or cheque is lost or destroyed, its holder is the person pe rson entitled at the time o such loss or destruction"$
%rom the abo!e defnition it is clear that or being a holder a person must be entitled to &
a"
the possession o the instrument in his on name' and
b" thereto"
recei!e or reco!er the amount due thereon rom the parties liable
()ossession’ ()ossession’ o the instrument by the holders reers to (de actor’ control and not the actual possession" The person must be named in the instrument either as a payee or as endorsee" *eaning o (de acto’ contract becomes clear in the e!ent o death o the actual holder" holder" The legal heir o a deceased holder does not ha!e his name endorsed on the instrument but he becomes holder by operation o la"
+ny person in rongul possession o the instrument cannot be the holder" Thereore, the fnder o a lost instrument payable to bearer, bearer, or a person in rongul possession o such instrument, is not a holder" holder"
%urther, the possession o the instrument and being named in it i t as the payee does not mae a person person a (holder’ thereo" thereo" He shall also be entitled entitled to recei!e payment and to gi!e a !alid discharge" Thus, a benefciary cannot be termed as
holder o the instrument and any payment by the draer to the benefciary cannot discharge him rom his liability" -acha )rasad ." /ani 0ai, 1234 -5/0 661 7%-"
+ny person ho is in possession o the instrument as payee ill not be a holder ithin the meaning o section 8 o the +ct i he has been prohibited rom recei!ing payment by an order o 9ourt"
The payee may authorie his agent to recei!e payment and to gi!e a !alid discharge or the same but this does not mae the agent the holder o the instrument since he cannot bring an action or reco!ery o money in the instrument in his on name"
Holder in due course
Section 2 o the +ct defnes a (holder in due course’ as:
“Holder in due course means any person ho or consideration became the possessor o a promissory note, bill o exchange or cheque i payable to bearer, or the payee or the endorsee thereo, i payable to order, beore the amount mentioned in it became payable, and ithout ha!ing su;cient cause to belie!e that any deect existed in the title o the person rom hom he deri!ed his title"$
Holder in due course means a holder ho taes the instrument bona fde or !alue beore it is o!erdue, and ithout any notice o deects in the title o the person ho transerred it to him"
Holder in due course or bearer instruments
Holder in due course or instruments payable to order
)rerequisites or being holder in due course
+ person ho claims to be holder in due course’ is required to pro!e:
7i
7ii
7iii
7i!
7!
That he is a holder :
That he is a holder or consideration:
+cquisition beore maturity :
That he has no noledge o deecti!e title :
The instrument as complete at the time o possession :
)ri!ileges o a “holder in due course$
7i , a person, ho signed and deli!ered to another a stamped but otherise inchoate instrument, is estopped rom asserting, as against a holder in due course, that the instrument has not been flled in accordance ith the authority gi!en by him pro!ided the amount flled is co!ered by the stamps a;xed"
"
7ii %ictitious name : < a bill o exchange is dran on behal o a fctitious person and is payable to his order, the acceptor is not relie!ed o his liability to the holder in due course because o the fctitious name"
7iii Title ree rom deects : He possesses title ree rom all deects" He alays possesses better title than that o the transeror or any o the pre!ious parties and can gi!e to subsequent parties the good title that he possesses"
7i! 5ost or obtained by raud or unlaul consideration : + person liable on a negotiable instrument cannot deend himsel against a holder in due course on the ground that the instrument as lost or obtained rom him by means o an o?ence or or an unlaul consideration 7Section 38
7! Astoppel against denying !alidity o the instrument originally made : “Bo maer o a promissory note and no draer o a bill o exchange or cheque and no acceptor o a bill o exchange or the honour o the draer shall in a suit thereon by holder in due course, be permitted to deny the !alidity o the instrument as originally made or dran$7Section 1=>
7!i )ayees incapacity: Bo maer o a promissory note and no acceptor o a bill o exchange payable to order shall, in a suit thereon by a holder in due
course, be permitted to deny the payee’s capacity at the date o note or bill to endorse the same" 7Section 1=1"
7!ii +ll prior parties liable :$ A!ery prior party to a negotiable instrument 7maer or draee, acceptor or endorser is liable thereon to a holder in due course until the instrument is duly satisfed 7Section 6C"$This means that a holder in due course can reco!er the amount o the negotiable instrument rom any or all o the pre!ious parties to the instrument"
7!iii Title o pre!ious parties : Bo endorser o a negotiable instrument shall in a suit thereon by a subsequent holder, be permitted to deny the signature or capacity o any prior party to the instrument 7section 1== "
Distinction beteen a holder and a holder in due course
7i 9onsideration : + holder may become the possessor or payee o an instrument e!en ithout consideration, hereas a holder in due course is one ho acquires possession or consideration"
7ii Time o possession : + holder in due course as against a holder, must become the possessor payee o the instrument beore the amount thereon become payable"
7iii Eood aith : + holder in due course as against a holder, must ha!e become the payee o the instrument in good aith i"e", ithout ha!ing su;cient cause to belie!e that any deect existed in the transeror’s title"
9apacity to incur liability under negotiable instruments
Section =C o the +ct states that e!ery person ho is capable o entering into a contract and to bind himsel can mae, dra, accept or negotiate a negotiable instrument, Section =4 pro!ides that the negotiable instruments may also be dran, accepted, and negotiated by an authoried agent on behal o the principal" Thereore, a person not capable o entering into a contract cannot bind himsel by being a party to the negotiable instrument"
Di?erent cases o parties’ capacity to incur liability under a negotiable instrument are discussed belo :
*inor : + minor is not competent to contract and, thereore, he cannot bind himsel by becoming a party to the negotiable instrument" Section =C pro!ides that “+ minor may dra, endorse, deli!er and negotiate such instruments so as to bind all parties except himsel"$ +n instrument does not !oid Fust because a minor is party to it"
5unatics : + lunatic or drunen person ho is incapable o understanding the e?ect o contracting on his interest is on the same ooting as that o minor"
9orporation : the contractual capacity o a company or corporation depends on the pro!isions contained in its memorandum o association or the charter"
+gency : + person capable o contracting may also bind himsel through his duly authoried agent acting in his name" -ut a general authority to transact business and to recei!e and discharge debts does not coner upon an agent the poer o accepting or indorsing bills o exchange so as to bind the principal" Thus, an agent ho has specifcally been authoried to dra, accept and negotiate negotiable instruments only can bind his principal"
The agent has to mae it clear that he is acting in a representati!e capacity" The orm o signature must sho that he intends to act as agent or that he does not intend to incur any personal liability" < this is not so done, he becomes personally liable" 7Sections =4 and =8
5egal representati!e : + legal representati!e o a deceased person ho signs his personal name to a promissory note, bill o exchange or cheque is liable personally thereon unless he expressly limits his liability to the extent o the assets recei!ed by him as such 7Section =2,
The term “legal representati!e$ includes heirs, executors and administrators"
