Holder in Due Course:
Definition:
”Holder in due course” means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque or the payee or endorsee thereof, 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.
Essentials to become Holder in due course:
1.To become a holder in due course, a person must obtain a negotiable instrument by paying valuable and lawful consideration for it.
2.When given as a gift or has been inherited, the transferee cannot be a holder in due course.
3.A holder must acquire the instrument before its maturity in order to attain the status of holder in due course.
4.The holder must have obtained the instrument in good faith
5.The instrument must be complete and regular on the face of it.
6.A Holder in Due Course may be either payee, or the possessor if the instrument is payable to bearer, or the endorsee if the instrument is payable to order.
Privileges of being Holder in Due Course:
1.Section 20 of the Negotiable Instrument Act, 1881 states that a person signing and delivering to another a stamped but otherwise inchoate instrument is debarred from asserting, as against a holder in due course, that the instrument has not been filled in accordance with the authority given by him, the stamp being sufficient to cover the amount.
2.Section 42 of the Negotiable Instrument Act, 1881 in case of 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, it is not permissible for acceptor to allege as against theholder in due course that such name is fictitious
3.According to section 46 and 47 of the Negotiable Instrument Act, 1881 in case of a bill or note is negotiated to a holder in due course, the other parties to the bill or note cannot avoid liability on the ground that the delivery of the instrument was conditional or for a special purpose only.
4.According to section 58 of the Negotiable Instrument Act, 1881 The person liable in a negotiable instrument cannot set up against the holder in due course the defences that the instrument had been lost or obtained from the former by means of an offence or fraud or for an unlawful consideration. Thus, a holder in due course acquires a title free from all defects.
5.Section 120 of the Negotiable Instrument Act, 1881 states that no maker of a promissory note, and no drawer of a bill or cheque and no acceptor of a bill for the honour 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. In short, a holder in due course gets a good title to the bill.
6.Also Section 121 of the Negotiable Instrument Act, 1881 states that no maker of a promissory note and no acceptor of a bill 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. In short, a holder in due course gets a good title to the bill.