DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : P. Samba Murthy,
Designation : Head of Department

Branch : D.C.C.P.
Institute : S.R.R.S. Govt. Polytechnic,
Sircilla, Karimnagar District
Year/Semester : V Semester
Subject : Banking – I
Subject Code : CCP- 504(B)
Topic : Negotiable Instrument Act
Duration : 50 Minutes
Sub-Topic : Instrument negotiable holder-in-
due course and their rights.
Teaching Aids : PPT and Animations
CCP504(B).58 1
Objectives
 On completion of this period, you would be able to

 Explain the concept of holder-in-due- course of

negotiable instrument and their rights.

CCP504(B).58 2
RECAP

 In the previous class, we have discussed with

regard to the meaning/definition of holder of
negotiable instrument and their rights
 Now let us concentrate on the definition/concept
of holder-in-due-course and their rights.

CCP504(B).58 3
Known to Unknown

1. Who is a holder?
2. What is his right?
3. Can you say who is a holder in due course ?

CCP504(B).58 4
HOLDER IN DUE COURSE:

 According to Sec.9 ‘A Holder in due course as 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 any
defect existed in the title of the person from whom
he derived his title.’

CCP504(B).58 5
 A person can be called a holder in due
course if he satisfies the following
conditions

 He became the holder of the instrument before

its maturity.
 He became the possessor of the instrument
when it is payable to bearer or the payee or
endorsee thereof when it is payable to order for
valuable consideration.

CCP504(B).58 6
 HOLDER IN DUE COURSE

 He became the holder of the instrument without

having sufficient cause to believe that any defect
existed in the title of the person from whom he
received it i.e. in good faith.
 He obtained the instrument complete and regular
on the fact of it.

CCP504(B).58 7
 HOLDER IN DUE COURSE

 When a negotiable instrument is lost, the person

who is the holder of it may apply to the drawer to give
him another bill of the same tenor, giving security to
the drawer to indemnify him against loss. As per
sec. 45A, if the drawer on request as aforesaid
refuses to give duplicate bill, he may be compelled to
do so.

CCP504(B).58 8
 HOLDER IN DUE COURSE

 He can also recover the instrument from the finder

because the finder does not get title to the instrument.
 If the finder has already obtained money on the
instrument, the instrument is discharged but the
holder can claim damages from the finder.
 To be on the safe side, the holder should at once give
notice of loss of the instrument to all the prior parties.

CCP504(B).58 9
 PRIVILEGES OF A HOLDER
IN DUE COURSE

The holder in due course enjoys the following privileges:

Presumption:

Every holder is deemed prima facie to be a holder in due

course and have obtained the instrument for valuable
consideration.

CCP504(B).58 10
 PRIVILEGES OF A HOLDER
IN DUE COURSE

Better title than that of the transferor (Sec.59):

 One who is a holder only gets no better title than that of

his transferor.
 But a holder in due course is in a privileged position in
the sense that he gets a better title than that of the
transferor.

CCP504(B).58 11
 PRIVILEGES OF A HOLDER
IN DUE COURSE
Better title despite inchoate stamped
instruments

 (Sec.20): In the case of inchoate i.e. incomplete

stamped instrument, if the holder or original payee
fills more amount than that was authorized, he
cannot enforce the instrument for the whole amount
(only actual authorized amount can be recovered).

CCP504(B).58 12
PRIVILEGES OF A HOLDER
IN DUE COURSE

 If such an instrument is transferred to holder in

due course, he can claim the whole of the
amount so entered, provided that amount filled
by the holder was in excess of authority given
cannot be taken against a holder in due course.

CCP504(B).58 13
PRIVILEGES OF A HOLDER
IN DUE COURSE
Liability of prior parties
 (Sec.36): All prior parties to a negotiable instrument
(i.e. maker or drawer, acceptor and intervening
endorsers) continue to remain liable to a holder in
duce course both jointly and severally (i.e. he can hold
any or all prior parties liable) until the instrument is
duly satisfied.
 Whereas, only preceding party is liable to a
succeeding party, if the succeeding party is only a
holder.
CCP504(B).58 14
PRIVILEGES OF A HOLDER
IN DUE COURSE

Privileges in case of fictitious bills (sec.42):

 When a bill of exchange is drawn in a fictitious name

and is made payable to the drawer’s order (i.e. where
both drawer and payee of a bill are fictitious persons),
the bill is said to be fictitious bill.

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PRIVILEGES OF A HOLDER
IN DUE COURSE

 Such a bill is not a good bill and cannot be

enforced by law.
 But the acceptor of such a bill is liable to a holder
in duce course provided the latter can show that
the endorsement on the bill and signature of the
supposed drawer are in the same handwriting.

CCP504(B).58 16
 PRIVILEGES OF A HOLDER
IN DUE COURSE

Privilege when instrument delivered conditionally is

negotiated (sec. 46 and 47):

 When a negotiable instrument is endorsed or delivered

conditionally or for a special purpose only, e.g. as
collateral security or for safe custody, and not with the
idea of transferring absolutely property therein, the
property in the instrument does not pass to the endorsee,
and he is merely a bailee with limited title and power of
negotiating it.
CCP504(B).58 17
PRIVILEGES OF A HOLDER
IN DUE COURSE

Estoppel (Law terminology – suffered from

one’s own mistake) against denying original
validity of instrument (sec. 120):

 The plea of original invalidity of the instrument e.g.

that no consideration actually passed between the
maker and payee cannot be put forth against the
holder in due course.

CCP504(B).58 18
PRIVILEGES OF A HOLDER
IN DUE COURSE

Estoppel against denying capacity of

payee to endorse (sec.121):

 No maker of a note and no acceptor a bill payable to

order shall, in a suit thereon by a holder in due
course, be permitted to deny the payee’s capacity.

CCP504(B).58 19
PRIVILEGES OF A HOLDER
IN DUE COURSE

Estoppel against denying signature or capacity of

prior party (sec.122):

 No endorser of a negotiable instrument shall, in a

suit therein by a subsequent holder be permitted to
deny the signature or capacity to contract of any
prior party to the instrument.

CCP504(B).58 20
PRIVILEGES OF A HOLDER
IN DUE COURSE
• Purging of prior defects (sec. 58):

 The party (maker, acceptor, or holder) liable to pay on

an instrument cannot be contend against a holder in due
course that he had lost the instrument or obtained from
him by fraud or for unlawful consideration.
 Thus, the defective title of the endorsee will not affect
adversely the rights of the holder in due course.

CCP504(B).58 21
Holder in due course

In the brief we can say that a holder becomes the holder

in due course when he satisfies the following conditions.
 He should have received the instrument for vehicle
consideration.
 The instrument should be regular, free of any defects.
 He must have become holder before the date of
mentioned.
 He must have becomes the holder of the instrument in
good faith.
CCP504(B).58 22
 Difference between holder and holder in
due course
Holder Holder in course

a) Holder need not to a) Holder should have

have possession of possession of the
the instrument. instrument.
b) There is no need of b) There should be some
consideration. consideration.
c) A person will become c) A holder in due course
a holder, even after must have obtained
the amount become possession of it before
payable. the amount mentioned
in it because payable.

CCP504(B).58 23
SUMMARY

 A holder in due course means a holder who takes the

instrument in good faith for value before it is due and
without any notice of defect in the title of the person who
transferred it to him.
 A holder in due course obtains a valid title though he
takes from one who had defective title or no title to the
instrument.

CCP504(B).58 24
QUIZ
1. A person can become a holder of the instrument,
if he became the holder of the instrument before
its

(c) Drawing
(d) Maturity
(e) Both a & b
(f) None

CCP504(B).58 25
QUIZ
1. A holder in due course can have a better title than

(c) Drawer
(d) Transferor
(e) None
(f) All the above

CCP504(B).58 26
Frequently Asked Questions

 What is meant by Holder in due course?

 What are the privileges of a Holder in Due Course
 Distinguish between a ‘holder’ and a ‘holder in due
course’

CCP504(B).58 27
Assignment
 Prepare answers for the above Questions

CCP504(B).58 28