ASSIGNMENT ON

Holder in due course

&
Their legal privileges

Course Title: MERCANTILE LAW

Course Code: LAW 323
Trimester: Summer2020

Submitted by: Submitted to:

Proshad Biswas Md. Shafiqul Islam

ID-19100060 Lecturer,
Department of Law & Human Rights,
Department of Law & Human Rights
Batch: 15th

Ranada Prasad Shaha University.

Ranada Prasad Shaha University.

Date of Submission 20th september 2020

 Letter of Contents
No Topic Page
Holder in due course
 03
Payment in due course
1 03
Requirements of a holder in due course
2 03-04
Privileges of Holder in Due Course
 04-06

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 Holder in due course
“Holder in due course” means any person who for consideration becomes 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 it became overdue,
without notice that the title of the person from whom he derived his own title
was defective.1
Explanation: For the purposes of this section the title of a person to promissory
note, bill of exchange or cheque is defective when he is not entitled to receive
the amount due thereon by reason of the provisions of section 58.
Payment in due course
Payment in due course means payment in accordance with the apparent tenor of
the instrument in good faith and without negligence to any person in possession
thereof under circumstances which do not afford a reasonable ground for
believing that he is not entitled to receive payment of the amount therein
mentioned.2
Requirements of a holder in due course
a) He must be a holder of the instrument according to section 8;
b) He must have obtained possession of the instrument for consideration,
which must be lawful, adequate etc. It may consist of money or any other
thing. Marriage has been held to be a valuable consideration. A donation
does not involve consideration, and as such a donee cannot be a holder in
due course;
c) He must have accepted the instrument before it became overdue. A
person who accepts an instrument after it became overdue, will become a
holder, but not a holder in due course;
d) He must have accepted the instrument without notice that the title of the
person from whom he derived his own title was defective. He must act in
1
Section 9 of The Negotiable Instrument Act
2
Section10 of The Negotiable Instrument Act

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 good faith. He should exercise due diligence and satisfy himself that the
instrument is free from defect of title.
Privileges of Holder in Due Course
a. As regards better title of holder in due course:
According to section 583, the finder of a lost instrument, or a person, who
obtains an instrument by means of an offence, a thief, or a person, who obtains
an instrument by fraud, or for an unlawful consideration, a promissory note
issued in favor of a witness for giving false evidence, is not entitled to receive
the amount due thereon, since his title is defective. He can neither enforce such
instrument, nor can lawfully transfer it. But if he transfers a bearer instrument or
an instrument indorsed in blank to a holder in due course, meaning a transferee,
who for consideration, accepted it without notice that the title of the transferor
was defective, such holder gets a ‘good and complete title’ to it. Such holder is
entitled to receive the amount due thereon. He can enforce such instrument and
can also lawfully transfer it. It cannot be pleaded against such holder that the
instrument has been lost or has been obtained by means of an offence, or fraud,
or for an unlawful consideration.
b. As regards inchoate stamped instrument
According to section 20 (1) of the Act, an inchoate stamped instrument is a
paper signed and stamped in accordance with the law relating to stamp duty
chargeable on negotiable instruments, and is either a wholly blank instrument or
is a partially incomplete instrument. When one person delivers to another such a
document, the latter is prima facie entitled to make or complete it into a proper
negotiable instrument for the amount specified therein, or where no amount is
specified, for any amount not exceeding the amount covered by the stamp.
According to the proviso to section 20 (2) of the Act, under an inchoate stamped
instrument, a holder cannot recover more than the amount intended to be paid
by the maker. But according to the proviso to section 20 (2) and (3)52, where it
3
Section 58 of the Negotiable Instrument Act

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is negotiated to a holder in due course, he can recover the full amount
mentioned in the instrument, and the maker cannot plead that the instrument has
not been filled up in accordance with the authority given by him, the stamp
being sufficient to cover the amount
c. As regards liability of prior parties
Section 36 of the Act provides that ‘Every prior party to a negotiable instrument
is liable thereon to a holder in due course until the instrument is duly satisfied.’
In other words, all the prior parties to a negotiable instrument, i e the maker or
drawer, the acceptor and all the intervening endorsers, continue to remain liable
to a holder in due course both jointly and severally, i e he can hold any or all the
prior parties liable, until the instrument is duly satisfied, i e payment is made.
d. As regards fictitious bill of exchange
According to section 42 of the Act a fictitious bill of exchange is an instrument
where both the drawer and the payee are fictitious persons. It is drawn in a
fictitious name and payable to the drawer’s order and indorsed by the same
hand as drawer’s signature, and purporting to be made by the drawer.
A holder cannot enforce a fictitious bill. But where it is negotiated to a holder
in due course, he can enforce it, and its acceptor cannot plead that the name is
fictitious.
e. As regards instrument delivered conditionally or for a special purpose
According to section 4654 of the Act when an instrument is indorsed or
delivered conditionally, i e it is to take effect on the happening of a certain
event, or for a special purpose only, e g as a security for a loan or for safe
custody, and not for the purpose of transferring absolutely the property therein,
then the property does not pass to the endorsee.
The endorsee, as a holder, can neither enforce nor transfer such an instrument.
But where it is negotiated to a holder in due course without notice, he can

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enforce it, and it can not be pleaded against him that the instrument was
delivered conditionally or for a special purpose only.
f. As regards presumption
According to section 118 (a) of the Act, until the contrary is proved, the law
presumes that the holder of a negotiable instrument is a holder in due course.
g. As regards estopple against denying original validity of instrument
Section 120 of the Act provides that ‘No maker of a promissory note and no
drawer of a bill of exchange or cheque, and no acceptor of a bill of exchange for
the honour of the drawer, shall, in a suit thereon by a holder in due course, be
permitted to deny the validity of the instrument as originally made or drawn.’
They, however, can challenge the validity of the instrument on the ground
that at the time of making the instrument, he was a minor, or his signature
had been forged or the instrument is otherwise void-ab-initio.
h. As regards estopple against denying capacity of payee to indorse
Section 121 of the Act provides that ‘No maker of a promissory note and no
acceptor of a bill of exchange payable to order shall, in a suit thereon by a
holder in due course, be permitted to deny the payee’s capacity, at the date of
the note or bill, to indorse the same.
The payee must be competent to indorse an instrument otherwise the endorsee
does not become the holder thereof. According to section 2656 a minor is
incompetent to indorse. But by virtue of Section 121 of the Act, a holder in due
course can enforce an instrument, despite the payee’s incapacity to indorse the
same.

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