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    Thursday, 16 March 2017

    Meant by a Holder in due to course

    A holder in due course means any person who becomes the possessor of a promissory note, bill of exchange or cheque for consideration is known as holder in due course Provided the comes into possession before the amount mentioned in the instrument becomes due and he has no sufficient cause to believe any defect existed in the title of the person from whom he derived title.

    A person will not be regarded as a holder in due course in he is not in possession of the instrument or he has obtained possession without paying valuable consideration after the amount mentioned in the instrument has become due or he suspected defect in his title from which he derived his title that is the instrument obtained by fraud.

    In other words we can say the person whom becomes the possessor of the negotiable instrument (1) for value (2) before maturity of the instrument (3) and in good faith, is known as holder in due course.

    Sometimes another condition is also mentioned that the document must be on the proper form.
    It is quite clear that it must be received for value if the holder is to become a holder in due course otherwise he will remain just a holder of instrument.

    The holder of the instrument must act honestly and must receive it in good faith and should take care to see that the instrument is complete and in proper order.

    When a negotiable instrument has been lost or has been obtained from any maker, acceptor or holder thereof, by means of an offence or fraud or for an unlawful consideration, no possessor or endorsee who claims through the person who found it or no obtained the instrument is entitled to receive-the amount due thereon from such maker, acceptor or holder or from any party prior to such holder, unless such possessor or endorsee is, or some person through whom he claims was a holder there of in due course.

    The man who finds the lost instrument or who steals an instrument acquires no title to it and the real owner of the instrument can take it back from him. But if the instrument is a bearer instrument or bears a blank endorsement and the finder or the thief transfers it to an innocent person for value and before maturity, the transferee gets a good title to it in spite of the defect in the title of the transferor. But if the instrument happens to be payable to order and the finder or the thief who finds it without endorsement and transfers it to an innocent holder without endorsement or with a forged endorsement, the transferee does not acquire a good title, because forgery gives no title.

    A person claiming to be a holder in due course must prove the following things:—

    1. That he gave valuable consideration before he became the possessor of the negotiable instrument if payable to bearer, or the payee or endorsee thereof it payable to order.


    2. That the consideration was paid by him before its amount was due for payment.

    3. That he had no sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

    According to section. 118 that until the contrary is proved, the Court shall presume that the holder of the instrument is a holder in due course, provided that where the instrument has been obtained by means of an offence or fraud or for an unlawful Consideration, the burden of proving that the holder is a holder in due course shall be upon him. The Court has also to presume that the instrument was made, endorsed, accepted etc., for consideration

    A holder in due course enjoys the following statutory rights:-
    1. A person, who has signed and inchoate (incomplete) delivered to another a stamped but otherwise inchoate instrument, is precluded (hindered) from asserting, as against a holder in due course, that the instrument has not been filled up in accordance with the authority given by him, the stamp being sufficient to cover the amount. (20).

    2. Every prior party to negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied. (36).

    3. When a bill of exchange is drawn payable to the drawer's order in a fictitious name and is endorsed by the same hand as the drawer's signature, the acceptor is not permitted to allege, (declare on oath) as against a holder in due course, that such name was fictitious. (42).

    4. When an instrument is negotiated to a holder in due course, the other parties thereto cannot avoid liability on the ground that the delivery of the instrument was conditional or for a special purpose only. (46).

    5. No maker of a promissory note and no drawer of a bill of exchange or cheque and no acceptor of a bill of exchange for the honor of the drawer shall, in a suit thereon by a holder in due course be permitted to deny the validity of the instrument as originally made or drawn. (120).

    6. A person liable on a negotiable instrument cannot set up as against a holder in due course, the defense that the instrument had been lost or obtained from him by means of an offence or fraud or for an unlawful consideration. (58).


    7. No maker of a promissory note and no acceptor of a bill of 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 of the note or bill to endorse the same. (121).
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    Item Reviewed: Meant by a Holder in due to course Rating: 5 Reviewed By: Usman Ali
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