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2. LLB


Reference books : As suggested by the University of Pune in their syllabus.

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Applicable sections - S. 8 and 9

a) Holder - S. 8

Definition - The " holder" of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction.

Thus in order to be a holder, a person must satisfy two conditions:
i) Legal possession of the instrument - The person must be entitled in his own name to the posession of the instrument
ii) Entitled to receive or recover the amount - He/she must have the right to receive/recover the amount of the instrument and give a valid discharge to the maker or acceptor of the instrument
iii) Right to enforce rights in own name

b) Rights of a Holder

i) Right to posession of the instrument - S.8
ii)Right to receive and recover the amount recorded therein - S.8
iii) Right to endorse the instrument - S.50
iv) Right to cross after issue - S.125
v) Right to convert blank endorsement to endorsement into full - S.49
vi) Right to duplicate lost instrument - S.45-A
vii) Right to present for acceptance in case of bill and for payment in case of other instruments - S.61, 64

c) Holder in due course:

Definition - "Holder in due course" means 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 2[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.

For a person to be a 'Holder in due course' he must therefore satisfy the following conditions:
i) must be a 'Holder' as per S.8
ii) must be a holder for consideration which is valuable and lawful
iii) instrument should be complete and regular on the face of it
iv) must become a holder in good faith

d) Rights and privileges of holder in due course:

i) Presumptions - S.118

Every holder is deemed to be a holder in due course, and the burden of proving the title is not on the holder. The burden only shifts to the holder if it is proved that the instrument was obtained by the holder from the maker/acceptor by means of fraud/for unlawful consideration.

ii) Better Title - S.58

Holder in due course gets better title than that of the transferor.

iii) Privilege in case of inchoate stamped instruments - S.20

In case of inchoate stamped instrument if the holder/payee fills more amount than the authorised amount, he cannot recover the excess.

iv) Liability of prior parties - S.36

All prior parties to an instrument are liable to a holder in due course until the instrument is duly satisfied.

v) Fictitious bills - S.42

If a fictitious bill of exchange comes to a holder in due course, he gets the right to recover the amount from the the acceptor.

vi) Privileges in case of conditional delivery - S.46,47

When an instrument is delivered/endorsed to another person upon some condition and if such instrument is transferred to the a holder in due course, such holder can recover the amount due on the instrument and the person who is liable to pay cannot take the defence of the special purpose.

vii) Estoppel against denying original validity of the instrument - S.120

The maker/acceptor cannot take the defence of the instrument being invalid when drawn when a suit for recovery is filed against such maker/acceptor.

viii) Estoppel against denying capacity of payee to endorse - S.121

A holder in due course can recover the amoun mentioned in the instrument even if the payee has no capacity to endorse the instrument.

ix) Estoppel against denying signature or capacity of prior parties - S.122

The endorser is estopped or precluded from denying the signature/capacity to contract of the prior parties in a suit by the holder in due course against such endorser.


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