Explain the term holder and holder in due course and explain fully the privileges granted to a holder in due course
Holder has three characteristics :
1. Document is in hand.
2. He is entitled to receive the amount written on the document.
3. He is entitled to sue against the refusal.
Holder In Due Course :-
Holder in due course should possess the feature :
1. A holder in due course must have become a holder of the instrument before the date of its maturity. He must be entitled to transfer it.
2. He must be a holder for a valuable consideration.
3. He must be valid holder of the instrument.
4. He must be a holder of the instrument in good faith.
5. Amount of document will be payable on that date when it will be presented.
6. He should be entitled to sue in case of refusal of payment.
7. He must have taken instrument complete and regular on the face of it.
PRIVILEGES OF HOLDER IN DUE COURSE:-
Following are the important privileges which are enjoyed by the holder in due course.
1. Better Title :-
A holder in due course gets better title than the transferor while a holder cannot get a better title.
Example :- Mr. Senha obtains an instrument by fraud he cannot sue it. If he transfers it to Mr. Nehra which make Mr. Nehra a holder in due course, Mr. Nehra can sue on the instrument.
2. Free From All Defects :-
As the instrument passes through the hands of a holder in due course to the subsequent holders, it becomes free from all defects.
3. Liability of Satisfaction :-
In case of negotiable instrument all the prior parties are liable to the holder in due course until it is duly satisfied. The holder in due course has right to sue against any prior party.
4. Invalidity of the Instrument :-
Any drawer, maker , or acceptor can not take the place of original invalidity of the instrument against the holder in due course.
5. Incomplete Stamped Instrument :-
In this case if the original payee fills more amount than that was authorized, he cannot enforce the instrument for the whole amount. If this instrument is transferred to the holder in due course, he can claim the whole entered amount.
6. Payees Incapacity :-
In this case a holder in due course can claim the payment in his own name despite the payees incapacity to indorse the instrument.
7. Fictitious Bill :-
The bill is said to be fictitious when it is drawn in a fictitious name and is made payable to the drawer order. It is not a good bill but the acceptor of a such bill is liable to the holder in due course.
8. Conditional Instrument :-
When one instrument is delivered for special purpose an not for the transfer of ownership, this does not affect the holder in due course. If it is negotiated liable on the instruments shall remain liable to him.