A holder in due course means any person who is able to become the possessor of a promissory note, bill of exchange or cheque, weather payable to bearer or the payee or endorsee.
Thereof, before the amount referenced in it gets payable and without having sufficient reason to accept that deformity existed in the title of the individual from whom he derived his title.
Conditions Of Holder in Due course:
1. The negotiable instruments must be in the possession of the holder in due course. In case of an order instrument, he must be the payee or endorsee.
2. The negotiable instruments must be regular and complete in all aspects. Holder of an incomplete instrument cannot be its a holder in due course.
3. The instrument must have been obtained for valuable consideration I.e by paying its full value. The consideration must be legal and adequate.
4. The instrument must have been obtained before the amount mentioned therein becomes payable or before maturity. This condition is applicable to instrument payable otherwise than on demand.
5. The instrument must have been obtained in good faith. In other words, one should obtain the instrument without having sufficient cause to believe that any defect existed in the title of satisfied.
Privileges Of a Holder in due course :
The privileges of a Holder in due course are :
1. Instrument free from all defects :
A holder in due course possesses better title than that of his transferer or any of the prior parties and can give to the subsequent parties the good title than he possesses.
This is the best benefit of a Holder in due course.
2. Right in case of the inchoate instrument:
In the case of an inchoate instrument or incomplete instrument, the rights of the holder in due course are not affected.
He shall have the right to recover the money of the instrument even if the transferor completed the incomplete instrument for a sum greater than what was the intention of the maker or drawer of the instruments.
3. Right in case of conditional delivery :
The right of a Holder is not affected and he acquires a good title to the instrument even when it is delivered conditionally or for a special purpose.
4. Liability of prior parties :
All prior parties to the negotiable instrument continue to remain liable to the holder in due course until the instrument is duly satisfied.
It means that a Holder in due course can recover the amount of the instrument who may be the maker, or the drawer, or the acceptor or the endorser.
5. Right to enforce payment of a fictitious bill :
It can enforce payment of a fictitious bill I.E the bill drawn by a fictitious drawer.
It is essential that the holder in due course proves that the document bears the endorsement with the signature in the same hand as that of the drawer.
6. Right not affected by the absence of consideration or presence of unlawful consideration :
The plea of absence of or presence of unlawful consideration is not available against the holder.
The holder cannot be denied payment of the instrument on the ground that the instrument was lost or obtained by means of an offence or fraud or for an unlawful consideration.
7. Estoppel against denying capacity of the payee to endorsee :
The plea of incapacity of the payee to endorse the instrument on the date of the promissory note or bill of exchange or cheque as he was a minor or insane or that he had no legal existence cannot be put forth against the holder in due course.
Circumstances when a banker becomes a holder in due course :
1. The collecting banker shall become the holder in due course when he credits the amount of the cheque to the account of the customer before the collection of cheque.
The customer is subsequently authorized to withdraw money from his account by using a cheque.
Generally, such a facility is given by the banker when there is prior agreement between the banker and the customer.
2. The banker becomes a holder in due course when he receives a cheque from his account in settlement of the debt due by the customer to the banker.
3. The banker also becomes a holder in due course when he has a lien on the cheque deposited for collection by the customer. As a holder in due courses, the banker shall have all the privileges of a holder in due course.
In other words, he shall have the right to recover the amount of the cheque from all the prior parties to the cheque in any circumstances.
Differences between holder and holder in due course:
1. Consideration: in case of holder existence of consideration is not essential.
It should obtain the instrument after paying its full value.
2. Possession: Incase of holder neither actual possession of the instrument nor any time limit within which it must be acquired is required.
The person entitled to be called holder in due course must possess the instrument before maturity or before it becomes overdue.
3. Transfers title: A holder is not concerned with the title of the transferer of the instrument. It is not necessary that he obtain the instrument in good faith and without any doubt in the title of the transferer.
It must obtain the instrument in good faith i.e without having any doubt in the title of the transferer.
4. Better title: A holder possess the title of the transferer and can transfer the same title to next trans-free. A possesses a better title than that of the transferor and can transfer the better title to the next transferee.
Frequently Questions And Answers :
1. Can a banker become a holder in due course?
Ans: Yes, a banker can become a Holder in due course.
2. What is a better title?
Ans: A holder possesses the title of the transferer and can transfer the same title to next trans-free.