holder in due course

Under s.9 of the Negotiable Instruments Act, 1881, a holder in due course is a person who for consideration became the possessor of a bearer instrument, or the payee or endorsee of an order instrument, before the amount became payable, without sufficient cause to believe that there was any defect in the title of the person from whom he took it.

The law gives him special protection so that instruments can circulate freely. He takes a title free from defects in the title of earlier parties, such as fraud or want of consideration between them; a person who takes from him also gets his rights (s.53); and every holder is presumed to be a holder in due course (s.118(g)). A mere holder (s.8) does not get these privileges. A forged instrument, however, passes no title even to a holder in due course.

Example

Because the bank discounted the bill in good faith before maturity, it is a holder in due course and the acceptor cannot plead the drawer's fraud against it.

In Indian law

• Sections 9, 53 and 118(g), Negotiable Instruments Act, 1881

See also

negotiable instrument · bill of exchange · promissory note · nemo dat quod non habet

Read more in the study notes

• Holder and holder in due course, parties to instruments, their liability and payment in due course (Banking Law)
• Negotiable instruments: meaning, characteristics, promissory note, bill of exchange and cheque (Banking Law)
• Negotiation, endorsement, assignment and presentment (Banking Law)
• Dishonour, noting and protest, acceptance for honour, material alteration, special rules of evidence and bills in sets (Banking Law)
• Penal provisions for dishonour of cheques (ss.138-148) and the Bankers' Books Evidence Act, 1891 (Banking Law)