HOLDER AND HOLDER IN DUE COURSE

 Holder and Holder in due course

Holder: Definition by Rule

According to the negotiable instruments Act 1881, section 8, “holder means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.”  The ‘Holder’ of a promissory note, bill of exchange, or cheque means the payee or indorsee who is in possession of it or the bearer thereof.

A person is called the holder of a negotiable instrument, if the following conditions are satisfied:

                        # He must be entitled to the possession of the instrument in his own name and under a legal title. Actual possession of the instrument is not essential; the holder must have the legal right to possess the instrument in his own name.

                              For example, if a person acquires a cheque or bill by theft, fraud, or forged endorsement or finds it lying somewhere, he does not acquire in his own name legal title thereto and hence he can not be called its holder.

                         # He must be entitled to receive or recover the amount from the parties concerned in his own name. In case of an order instrument, it is essential that the name of the holder appears on the document as its Payee or endorsee. 

                          But in case of bearer instrument the name of the bearer is not essential to be appeared. In case a bill, note or cheque is lost or destroyed, the person who was entitled to receive payment at the time the instrument was lost, will continue to be regarded as its Holder, the finder does not become its holder.

Holder in due course: Definition by Rule

According to the negotiable instruments Act 1881, 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 became 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 a negotiable instrument if the following conditions are satisfied:

1. The negotiable instrument must be in the possession of the holder in due course.
2. The negotiable instrument must be regular and complete.
3. The instrument must have been obtained for valuable consideration, i.e., by paying its full value.
4. The instrument must have been obtained before it is matured.
5. The holder in due course must obtain the instrument without having sufficient cause to believe that any defect existed in the title of the transferor.

Difference between holder and holder in due course

From the definitions of the terms ‘holder’ and ‘holder in due course’ we may derive the following points of difference between them:

1. Consideration: The existence of consideration is not essential in case of a holder, but a holder in due course obtains the instruments after paying its full value. For example, if a Cheque is issued to provide a gift or donation to a charitable trust, the trust does not become its holder in due course. On the other hand, tuition fee paid to a school or college is for a valuable consideration. Hence the school or the college acquires the status of holder in due course.
2. Possession: The person entitled to be called holder in due course must become the possessor of the instrument before it became payable.
3. Defect in the transferor’s title: The most important point of difference is that a holder in due course acquires an instrument without having sufficient cause to believe that any defect existed in the title of the transferor. This condition is not essential in case of a holder.