Define holder in due course with its condition
Posted by Ripon Abu Hasnat on Sunday, December 6, 2015 | 0 comments
According to Section 9, “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 endorsee thereof if payable to order, before the amount mentioned in it become payable, and without having sufficient cause to believe that defect existed in the title of the person from whom he derived his title”.
A person becomes a holder in due course of negotiable instrument is the following conditions are satisfied:
i) The negotiable instrument must be in the possession of the holder in due course. In case of an order instrument, he must be its payee or endorsee, i.e., his name must appear on the instrument.
ii) The negotiable instrument must be regular and complete in all aspects. Alterations, if any, must be confirmed by the drawer through his signature. Holder of in incomplete document cannot be its holder in due course. The instrument must have been properly delivered to the holder in due course. In case of an order cheque endorsement in favour of the holder is essential.
iii) The instrument must have been obtained for valuable consideration, i.e., by paying its full value. A person who receives a cheque as a gift will not be called its holder in due course for want of consideration. The consideration must be legal and adequate. For example, if a cheque is given in respect of a debt incurred in gambling, the consideration for the cheque is unlawful. If the value of the consideration falls short of he amount of the instrument, the person will be deemed as holder in due course to the extent of the value of consideration.
iv) The instrument must have been obtained before the amount mentioned therein becomes payable. This condition is applicable to documents payable otherwise than on demand and does not apply to a cheque which is always payable on demand.
v) The holder in due course must obtain the instrument without having sufficient cause to believe that any defect existed in the title of the transfer. This is the most important condition to be satisfied. The title of a person to the negotiable instrument is deemed to be defective if he acquires it by unfair means, e.g., by fraud, coercion, undue influence or by any other illegal method or for an illegal consideration. If he does not possess any title thereto, his title is also deemed to be defective.
Section 9 lays heavy responsibility on the person accepting a negotiable instrument in this regard. He should not only have no notice of any defect in the transfero’ stitle thereto, but he should have no cause to believe that the title was defective. In means that the circumstances of the case should not give rise to any doubt or suspicion about the defective title or the transferor. The holder in due course should, therefore, exercise great care and take all necessary precautions in finding out if the transferor’s title was defective. If he shows negligence or does not take due care in this regard, he shall not be called the holder in due course.
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