(1) Holder (Section 8) *Any person who is legally entitled to the possession of a negotiable instrument and receive the payment thereof on the due date is known as its holder. *Therefore, in order to be a holder, a person should posses the following two rightsHe should be entitled to the possession of the instrument in his own name (whether as bearer or as payee or endorsee) . , An agent entrusted with an instrument of the principal for safe- keeping is not entitled to its possession in his own name. He should be entitled to receive the payment in his own name. Therefore, if a person is in the possession of a a negotiable instrument but is not entitled to receive payment thereon, > a thief, or the finder of a_ lost instrument, such person is not a holder of the instrument.*A promissory note is drawn as payable to A or to his order, then A will be the holder thereof as soon as the instrument comes in his possession. If A gives the instrument to B for safe-keeping, then B is not the holder thereof even if he is in possession of the instrument. This is so because A has not endorsed the instrument in favour of B and B cannot file a suit for the recovery of the amount of the instrument. If however, A had endorsed the instrument in favour of B, then B would have been the holder thereof.(2) Holder for Value *lf any person is the holder of a negotiable instrument, the value of which has been paid at any time in the past, then he is known as a holder for value. *Who actually has paid the value is not a relevant question. Such a holder does not acquire the instrument for any consideration but even he has all the rights of payment against all the prior parties*A receives a cheque of Rs. 25,000 from a person who owes him that amount. He donates the same to a charitable trust. In such a situation it is A who has paid the value of the instrument and not the trustees of the charitable trusts. Therefore, the trustees of the charitable trust are holders for value of the negotiable instrument.(3) Holder in Due Course (Section 9) *Holder in due course means any person who for consideration becomes the possessor or of a promissory note, bill of exchange or cheque if payable to the bearer or to the payee or endorsee thereof (if payable to order), before the amount mentioned on it becomes payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived the title.Qualifications of a Hold Due Course In order to be a holder in due course, a person will have to prove the following: 1. He must be a Holder * That he is the holder of the instrument. In case the instrument is payable to bearer, then he is in possession of the instrument, and if the instrument is payable to order, then he is the payee or endorsee thereof.d Holder in Due Course - Privileges | Difference between Holder an 2. He must be a holder for valuable consideration * He must became the holder of the negotiable instrument for a consideration in pursuance of a contract. * Therefore, any person who comes into possession of negotiable instrument which was donated to him may be the holder thereof, but he is not a holder in due course. He gets the same t.tl2 to the negotiable instrument as that of the transferor. A donee, who acquires title to the instrument by way of gift, is not a holder in due course for want of consideration, although he is a holder. * The consideration must also be lawful. Thus, a debt incurred in gambling is not valid or lawful consideration, and a person who acquires a bill or note in consideration of such a debt is not a holder in due course. er) De Negotiable Instruments Act, 1881CMa aMule mlm ele instrument before its maturity *He became the holder of the instrument before the payment became due thereon, i.e., before the date of maturity. This is so because if a negotiable instrument remains in circulation even after its maturity, doubts may arise in relation to such an instrument. *Therefore, as per Section 39, if any person acquires any instrument after its maturity then he will get the same title to the instrument as that of the transferor.4. He must take the negotiable instrument complete and regular on the face of it elt is the duty of every person who takes a negotiable instrument to examine its form and contents thoroughly. If it contains any material alteration which has not been confirmed by the drawer through his signature, or if it is incomplete, say, drawer's name is not there or it is not properly stamped, he will not become a holder in due course.5. He must have become holder in good faith without having sufficient cause to believe that any defect existed in the title of the transferor * There was no valid reason for him to believe that the title of the person from whom he acquired the instrument was defective. In case any person is careless in checking the title of the transferor or knowingly ignores any defect in the title of the transferor, then he can be stripped of his rights as a holder in due course. This is the most important condition to be satisfied. He must exercise great care and take all necessary precautions in finding out if the transferor's title was defective. f when he takes a bill which has been torn and the pieces pasted together, at least if the tears appear to show an intention to cancel it, without inquiry, he is not a holder in due course.1) 2) 3) 4) 5) 6) 7) 8) 9) Special Privileges of a Holder in Due Course In case of an inchoate stamped instrument (Section 20) lity of prior parties (Section 36) Fictitious bill (Section 42) Conditional delivery (Section 46 & 47) Instrument free from all defects (Section 53) Instrument obtained by unlawful means or for unlawful consideration (Section $8) Every holder t is a holder in due course (Section 118) Estoppel against denying original validity of instrument (Section 120) Estoppel against denying capacity of payee to endorse (Section 121) 10) Estoppel against endorser to deny capacity of prior parties (Section 122)Case : Lloyds Bank vs. Cooke *A delivers a signed and stamped instrument to B along with the instruction that the amount to be filled therein shall not exceed Rs. 500. B fills in the amount of Rupees 1,000 (which is covered by the value of the stamp) on the instrument. In such a case. B cannot file a suit against A for the recovery of Rs. 1,000. If, however, B had transferred the instrument to C who is a holder in due course, then C gets a good title to the full amount of Rs. 1,000 and his title is not restricted to Rs. 500.(2) Liability of prior parties (Section 36) * All the prior parties to a negotiable instrument (namely the maker or drawer, the acceptor and all the endorsers) continue to be liable to the holder of the negotiable instrument until the instrument is properly discharged. *The holder in due course is entitled to maintain an action in his own name against all or any of the parties whose names appear on the instruments.(3) Fictitious bill *lf any instrument is drawn by any person in the name of a fictitious person and that person endorses the bill in favour of any other person, then he cannot hold against the holder in due course that the drawer of the instrument was a fictitious person.(4) Conditional delivery *Where a bill or note delivered conditionally is negotiated to a holder in due course the other parties to the instrument cannot escape liability on the ground that the delivery of the instrument was conditional or for a special purpose only.(5) Instrument free from all defects (Section 53) * Once a negotiable instrument passes through the hands of a holder in due course, it becomes free from all defects. Any body who takes a negotiable instrument from a holder in due course can recover the amount from all parties prior to such holder. * Example: If a negotiable instrument is transferred by way of fraud to a holder in due course(B), and the holder in due course further transfers the instrument to another person(C), then such other person's title to the negotiable instrument shall be free from the defect of the fraud even though he knows about its occurrence. However, this shall not be the case if the transferee(C) of fraud was himself a party to such fraud(6) Instrument obtained by unlawful means o unlawful consideration *The person liable on an instrument cannot plead against the holder in due course that the instrument had been lost or was obtained by means of an offence or fraud or for an unlawful consideration(7) Every holder is a holder in due course *Unless it is proved to the contrary, the courts are bound to presume that the holder of a negotiable instrument is a holder in due course. However in case the instrument was acquired by committing fraud or any other crime, then the onus of proof is on the holder to prove that he is a holder in due course(8) Estoppel against denying original validity of ladgelealale The maker of a note, the drawer of a bill or cheque and acceptor of a bill for the honour of the drawer, cannot deny the validity of the instrument as originally made or drawn when a suit is filed by a holder in due course for the recovery of the amount due on the instrument.(9) Estoppel against denying capacity of payee to endorse ¢The maker of a promissory note or the accepter of a bill of exchange is precluded from denying against a holder in due course the existence of the payee’s capacity to endorse.(10) Estoppel against endorser to deny capacity of prior parties eln case of a suit on the instrument by a subsequent holder, no endorser shall be permitted to deny the signature or capacity to contract of any prior party to the instrument.Difference between Holder & Holder in Due (ol Ky) Pas errr) 1. Meaning Holder means any person entitled Holder in due course means a ln his own name to the possession holder who takes the instrument of the negotiable instrument and. in good faith , for consideration , to recover or receive the amount before the maturity date and due thereon from the parties without any notice of defect in the thereto. title of the person who transferred tCre 2. Consideration 3. Before maturity ‘4. Good Faith ra errs Consideration is not necessary. ‘Consideration is must. He can acquire ‘A holder may obtain possession before A holder in due course must obtain the or after the maturity of the instrument. possession before maturity of the instrument. A holder need not become the A holder in due course must become ossessor in good faith. the possessor in good faith. Le. without having sufficient cause to believe that any defect existed in the transferor’s title.Cr 6. Right against Prior parties 7. Better Title then the transferor Aholder does not have rights against all tthe prior parties. He has rights against {the original parties and his immediate endorser. Holder cannot have 2 better title than that of a transferor.He cannot recover the amount on He can recover the amount on a fictitious instrument. fictitious instrument provided he proves ‘that the signature of the drawer and the first endorsee are in same hand-writing, He cannot enforce his rights even on the He can enforce his rights even on the instrument which was originally delivered conditionally22. Signature 13. Necessity A holder cannot claim on an instrument Wf payee's capacity to endorse is denied. He cannot enforce his rights if the Signature or capacity to contract of any rior party the instrument is denied, For a holder, it is not necessary to be holder in due course. He can claim rights against the lestrument even if payee's capacity to endorse is denied. He can enforce his rights even if the Signature or capacity of contract of any rior party to the instrument is denied. For a holder in due course, it is necessary to be a holder.Holder does not enjoy all the privileges which are available to the holder in due privileges under various sections 20, 36, course. 46, 58, 121, 122.