MODULEI

I
I

NEGOTI
ABLEI
NSTRUMENTS

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HOLDERANDHOLDERI
NDUECOURSE

Sect
ion8ofNegot
iabl
eInst
rument
sAct1
881
:"Hol
der
"

The"
hol
der
"ofapr
omi
ssor
ynot
e,bi
l
lofexchangeorchequemeansanyper
son

ent
it
ledi
nhi
sownnamet
ofr
omt
hepar
ti
est
hepossessi
ont
her
eofandt
o

r
ecei
veorr
ecov
ert
heamountduet
her
eont
her
eto.

Wher
ethenot
e,bi
l
lorchequei
slostordest
roy
ed,
it
shol
deri
stheper
sonso

ent
it
ledatt
het
imeofsuchl
ossordest
ruct
ion.

 
Sect
ion9ofNegot
iabl
eInst
rument
sAct1
881
:"Hol
deri
nDueCour
se"

Hol
" deri
nduecour
se"meansanyper
sonwhof
orconsi
der
ati
onbecamet
he

possessorofapr
omi
ssor
ynot
e,bi
l
lofexchangeorchequei
fpay
abl
etobear
er,

ort
he pay
ee orendor
see t
her
eof
,ifpay
abl
eto or
der
,bef
oret
he amount

ment
ionedi
nitbecamepay
abl
e,andwi
thouthav
ingsuf
fi
ci
entcauset
obel
i
eve

t
hatanydef
ectexi
stedi
nthet
it
leoft
heper
sonf
romwhomheder
ivedhi
sti
tl
e.

Sect
ion9ofN.
I
.Act
,def
inehol
deri
nduecour
seasunder
.

“
Hol
deri
nduecour
semeansanyper
sonwhof
orcons
ider
ati
onbecamet
he

pos
ses
sorofapr
omi
ssor
ynot
e,bi
l
lofexchangeorcheque,
ifpay
abl
etobear
er,

ort
he pay
ee orendor
see t
her
eof
,ifpay
abl
eto or
der
,bef
oret
he amount
ment
ionedi
nitbecamepay
abl
e,andwi
thouthav
ings
uff
ici
entcaus
etobel
i
eve

t
hatanydef
ectexi
stedi
nthet
it
leoft
heper
sonf
romwhomheder
ivedhi
sti
tl
e.
”

Hol
deri
nduecour
sei
saper
sonwhot
akesanegot
iabl
eins
trumentf
ort
hev
alue

r
ecei
vabl
ebyhi
mingoodf
ait
handt
akenduecar
eandcaut
ionwhi
l
etaki
ngs
uch

i
nst
rumentandhehadnos
uspi
ci
onorr
eas
ont
obel
i
eveanydef
ectexi
stedi
nthe

t
it
leoft
heper
son,
fromwhomheder
ivedt
it
lepos
ses
sionoft
hei
nst
rument
.Thus
,

aper
son cl
ai
mto be a‘
hol
deri
n due cour
se’s
houl
dsat
isf
ythe f
oll
owi
ng

condi
ti
ons
.

1
.Hemustacqui
ret
hei
nst
rumentf
oraconsi
der
ati
on.

2.Thei
nst
rumentacqui
redshoul
dbebef
orei
tismat
uredf
orpayment
.An

i
nst
rumentpayabl
eondemandi
str
eat
edascur
rent
,subj
ectt
oithasnot

beeni
nci
rcul
ati
onf
ort
heunr
easonabl
elengt
hoft
ime.

3.I
tismosti
mpor
tantt
hatt
hehol
deri
nthecour
sehadnocauset
obel
i
evet
hat

anydef
ectexi
stedi
nthet
it
leofaper
sonf
rom whom hehasacqui
redt
he

i
nst
rument
.

4.Aper
sonaccept
ingani
nchoat
e(i
ncompl
ete)i
nst
rumentcannotbeahol
der

i
nduecour
se.

5.Thei
nst
rumentshoul
dbecompl
eteandr
egul
arwhi
l
etaki
ngi
tspossessi
on.

6.For
gedsi
gnat
ureconv
eysnot
it
le;
 
assucht
her
ecannotbeahol
deri
ndue

cour
seunderf
orgedendor
sement
.

RI
GHTSOFHOLDERI
NDUECOURSE

Sect
ion36ofNI
ACT1
881r
eadst
her
ight
sofHol
deri
nduecour
se.
 “
Ever
ypr
iorpar
tyt
oanegot
iabl
eins
trumenti
sli
abl
ether
eont
oahol
deri
ndue

cour
seunt
il
thei
nst
rumenti
sdul
ysat
isf
ied.
”

I
ntheabov
esect
ion;

‘
Ever
ypr
iorpar
ty’
 
meanst
hemakerordr
awer
,theaccept
or,andi
nter
veni
ng

endor
ser
/s.

Dul
ysat
isf
ied 
meansi
fthel
i
abi
l
it
yofal
lthepar
ti
esi
sext
ingui
shedandt
he

i
nst
rumenti
sdi
schar
ged.

Hol
derandHol
deri
nduecour
se

Var
iousdi
ff
erencesbet
weenhol
derandhol
der
-i
n-due-
cour
secanbeexpl
ai
ned

ont
hebas
isoft
hef
oll
owi
ng

 Ent
it
lement

 Mat
uri
ty

 Ri
ghtt
orecov
eramount

 Pr
ivi
l
eges

 Consi
der
ati
on

 Ti
tl
e

 Not
iceofdef
ecti
ntheTi
tl
e

1
.Ent
it
lement
: 
Hol
deri
saper
sonwhoi
sent
it
ledf
ort
hepos
ses
sionofanegot
iabl
e

i
nst
rumenti
nhi
sownname.Hence,hes
hal
lrecei
veorr
ecov
ert
heamountdue

t
her
eon.Wher
easaHol
der
-i
n-due-
cour
sei
saper
sonwhohasobt
ainedt
he

i
nst
rumentf
orcons
ider
ati
onandi
ngoodf
ait
handbef
oremat
uri
ty.
2.Consi
der
ati
on:
 
Cons
ider
ati
on i
s notneces
sar
yto become a hol
der
.The

i
nst
rumentmayal
sobegi
venbywayofadonat
ionorgi
ftandt
hus
,thedoneeof

ani
nst
rumentcanal
sobecomeahol
derofi
t.
Howev
er,
cons
ider
ati
oni
samus
tto

become a hol
der
-i
n-due-
cour
se and t
her
eby t
he donee ofa negot
iabl
e

i
nst
rumentcanbeahol
derbutnothol
der
-i
n-due-
cour
se.

3.Mat
uri
ty:
 
Ahol
dermayacqui
ret
hei
nst
rumentev
enaf
teri
tsmat
uri
ty.
Butahol
der

-
in-
due-
cour
semus
tacqui
ret
hei
nst
rumentbef
orei
tsmat
uri
tyf
ail
i
ngwhi
chhe

wi
l
lnotenj
oyt
her
ight
sofahol
der
-i
n-due-
cour
se.

4.Ti
tl
e:
 Ahol
derdoesnotacqui
reabet
tert
it
let
hant
hatoft
rans
fer
or.I
nsi
mpl
e

wor
ds,i
fthet
it
leofanyoft
hepr
iorpar
tyi
sdef
ect
iv
e,hi
sti
tl
ewi
l
lnotbedef
ect

f
ree.
Wher
eas
,ahol
der
-i
n-due-
cour
seder
ivesagoodt
it
lef
reedf
romal
ldef
ect
s.

Hi
sti
tl
eisbet
tert
hant
hatoft
het
rans
fer
or.

5.Ri
ghtt
orecov
eramount
: 
Ahol
derhasar
ightt
orecov
ert
heamountdueont
he

i
nst
rumentf
rom t
het
rans
fer
or(
i.
e.
,j
ustpr
ecedi
ngpar
ty)onl
yfr
om whom hehas

obt
ainedt
hei
nst
rument
.Hol
der
-i
n-due-
cour
se,ont
heot
herhand,canr
ecov
er

t
heamountdueont
hei
nst
rumentf
romanyoft
hepr
iorpar
ti
est
il
lt
hei
nst
rument

i
sdul
ydi
schar
ged.
Thus
,al
lpr
iorpar
ti
ess
hal
lremai
nli
abl
etowar
dst
hehol
der
-i
n-

due-
cour
se,
joi
ntl
yaswel
lass
ever
all
y,t
il
lt
hei
nst
rumenti
sdul
ydi
schar
ged.

6.Not
iceofdef
ecti
ntheTi
tl
e:
 Ahol
der
-i
n-due-
cour
sei
snotonl
ysuppos
edt
ohav
e

acqui
redt
hei
nst
rumentwi
thoutanynot
iceoft
hedef
ectoft
het
it
leoft
heper
son

f
rom whom heobt
ainedi
t,butal
sot
her
eshoul
dbenocaus
eonhi
spar
tto

bel
i
evet
hatanydef
ects
ust
ainsi
nthet
rans
fer
or’
sti
tl
e.Butahol
deri
sexempt

f
rom t
hiscondi
ti
on.Hemayhav
enot
iceofdef
ecti
nthet
it
lebuthes
hal
lnotbe
 l
i
abl
efori
tunl
esshei
sapar
tyt
othatdef
ect
,fr
aud,
orf
orger
y.

7.Pr
ivi
l
eges
: 
Ahol
der
-i
n-due-
cour
seenj
oyscer
tai
npr
ivi
l
egesundert
heNegot
iabl
e

i
nst
rument
sAct(
asdi
scus
sedear
li
er)
,whi
char
enotav
ail
abl
etoahol
der
.

Compar
isonChar
t

BASI
S FOR HOLDER I
N DUE
HOLDER
COMPARI
SON COURSE(
HDC)

A hol
deri
n due cour
se
Ahol
deri
saper
sonwho
(
HDC)i
s a per
son who
l
egal
l
y obt
ains t
he
acqui
res t
he negot
iabl
e
negot
iabl
e i
nst
rument
,
Meani
ng i
nst
rument bonaf
ide f
or
wi
thhi
snameent
it
ledon
s
ome cons
ider
ati
on,
i
t,t
orecei
vet
hepay
ment
whos
e pay
ment i
sst
il
l
f
romt
hepar
ti
esl
i
abl
e.
due.

Cons
ider
ati
on Notneces
sar
y Neces
sar
y

A hol
dercannots
ue al
l A hol
deri
n due cour
se
Ri
ghtt
osue
pr
iorpar
ti
es. cans
ueal
lpr
iorpar
ti
es.

The i
nst
rument may or The i
nst
rumentmus
tbe
Goodf
ait
h
may notbe obt
ai n obt
ned i ainedi
ngoodf
ait
h.
 goodf
ait
h.

Pr
ivi
l
eges Compar
ati
vel
yles
s Mor
e

A per
son can become A per
son can become

hol
der
,bef
oreoraf
tert
he hol
deri
nduecour
se,
onl
y
Mat
uri
ty
mat
uri
tyoft
henegot
iabl
e bef
ore t
he mat
uri
ty of

i
nst
rument
. negot
iabl
eins
trument
.

PRI
VILEGES GRANTED TO A ‘
HOLDER I
N DUE COURSE’UNDER THE

NEGOTI
ABLEI
NSTRUMENTS

Pr
ivi
l
egesgr
ant
edt
oa‘
hol
deri
nduecour
se’
undert
heNegot
iabl
eInst
rument
s

ar
egi
venbel
ow:

1
.Heget
sabet
tert
it
let
hant
hatoft
het
ransf
eror
:

Onewhoi
sa‘
hol
der
’onl
yget
snobet
tert
it
let
hant
hatofhi
str
ans
fer
orbuta

hol
deri
nduecour
sei
sinapr
ivi
l
egedpos
iti
oni
nthatheget
sabet
tert
it
let
han

t
hatoft
het
rans
fer
orandt
hedef
ens
esont
hepar
tofaper
sonl
i
abl
ethatt
he

i
nst
rumenthasbeenl
ost
,orhasbeenobt
ainedbymeansofanof
fenceorf
raud

orf
oranunl
awf
ulcons
ider
ati
oncannotbepl
eadedagai
nstahol
deri
ndue

cour
se(
Sec.
58)
.

Forexampl
e,i
fPobt
ainsani
nst
rumentpay
abl
etobear
erbyt
hef
torf
raud,
orf
or

anunl
awf
ulcons
ider
ati
on,hecannots
ueoni
t.Buti
fPt
rans
fer
sthei
nst
rument
(
bei
ngabear
erone)t
oRunderci
rcums
tances(
forv
aluei
ngoodf
ait
h)whi
ch

makeRahol
deri
nduecour
se,
Rcans
ueont
hei
nst
rument
.

Thepar
tyl
i
abl
etopaycant
ake,
asagai
nstP,
thedef
enceoft
hef
torf
raud,
butas

agai
nstRhewi
l
lnotbeal
l
owedt
otakes
uchadef
ence.

Fur
ther
,notonl
ythehol
deri
nduecour
sehi
msel
fget
sagoodt
it
lef
reef
rom al
l

def
ect
sbutal
sos
erv
esasachannel
topr
otectal
lsubs
equenthol
der
s.Oncean

i
nst
rumentpas
sest
hrought
hehandsofahol
deri
nduecour
sei
tispur
gedofal
l

def
ect
s.Sect
ion53s
tat
est
hat“
ahol
derofanegot
iabl
eins
trumentwhoder
ives

t
it
lef
rom ahol
deri
nduecour
sehast
her
ight
sther
eonoft
hathol
deri
ndue

cour
se.
”

Thus
,any
bodywhot
akesanegot
iabl
eins
trumentf
rom ahol
deri
nduecour
se

canr
ecov
ert
heamountf
romal
lpr
iorpar
ti
es,
alt
houghhehadknowl
edgeoft
he

pr
iordef
ect
se.
g.
,nocons
ider
ati
onwaspai
dbys
omeoft
hepr
iorpar
ti
esors
ome

oneoft
hemwasat
hief
.

I
tisi
mpor
tantt
onot
ethataf
orgedi
nst
rument
,ev
eni
fitpas
sest
hrought
he

handsofahol
deri
nduecour
se,cannotbecur
edofi
tsdef
ectbecaus
ether
eis

nodef
ectoft
it
lebutt
her
eiscompl
eteabs
enceoft
it
le.

2.
Pri
vi
legei
ncas
eofi
nchoat
est
ampedi
nst
rument
s(Sec.
20)
:

I
nthecas
eofi
nchoat
est
ampedi
nst
rument
,ift
hehol
deroror
igi
nalpay
eef
il
l
s

mor
eamountt
hant
hatwasaut
hor
ised,
hecannotenf
orcet
hei
nst
rumentf
ort
he

whol
eamount(
onl
yact
ual
aut
hor
isedamountcanber
ecov
ered)
.
I
fsuchani
nst
rumenti
str
ans
fer
redt
oahol
deri
nduecour
se,hecancl
ai
mthe

whol
eoft
heamounts
oent
eredpr
ovi
dedt
hatt
heamounti
scov
eredbyt
he

s
tampaf
fi
xedt
her
eon.
Thus
,thedef
encet
hatt
heamountf
il
l
edbyt
hehol
derwas

i
nexces
soft
heaut
hor
it
ygi
vencannotbet
akenagai
nstahol
deri
sduecour
se.

3.
Liabi
l
it
yofpr
iorpar
ti
es:

Al
lpr
iorpar
ti
est
oanegot
iabl
eins
trument(
i.
e.
,i
tsmakerordr
awer
,accept
orand

i
nter
veni
ngendor
ser
s)cont
inuet
oremai
nli
abl
etoahol
deri
nduecour
sebot
h

j
oi
ntl
yands
ever
all
y(i
.
e.,hecanhol
danyoral
lpr
iorpar
ti
esl
i
abl
e)unt
ilt
he

i
nst
rumenti
sdul
ysat
isf
ied(
Sec.
36)
.Wher
eas
,onl
ypr
ecedi
ngpar
tyi
sli
abl
etoa

s
ucceedi
ngpar
ty,
ift
hes
ucceedi
ngpar
tyi
sonl
yahol
der
.

4.
Pri
vi
legei
ncaseofFi
cti
ti
ousbi
l
ls(
Sec.
42)
:

Whenabi
l
lofexchangei
sdr
awni
naf
ict
it
iousnameandi
smadepay
abl
etot
he

dr
awer
’sor
der(
i.
e.
,wher
ebot
hdr
awerandpay
eeofabi
l
lar
efi
cti
ti
ousper
sons
),

t
hebi
l
liss
aidt
obeaf
ict
it
iousbi
l
l.Suchabi
l
lisnotagoodbi
l
landcannotbe

enf
orcedatl
aw.

Butt
heaccept
orofs
uchabi
l
lisl
i
abl
etoahol
deri
nduecour
sepr
ovi
dedt
he

l
att
ercans
how t
hatt
hef
ir
sti
ndor
sementont
hebi
l
landt
hes
ignat
ureoft
he

s
uppos
eddr
awerar
eint
hes
amehandwr
it
ing.

5.
Pri
vi
legewhenani
nst
rumentdel
i
ver
edcondi
ti
onal
l
yisnegot
iat
ed:

Whenanegot
iabl
eins
trumenti
sendor
sedordel
i
ver
edcondi
ti
onal
l
yorf
ora

s
peci
alpur
pos
eonl
y,e.
g.
,ascol
l
ater
als
ecur
it
yorf
ors
afecus
tody
,andnotwi
th
t
hei
deaoft
rans
fer
ri
ngabs
olut
elypr
oper
tyt
her
ein,
thepr
oper
tyi
nthei
nst
rument

doesnotpas
stot
hei
ndor
see,andhei
smer
elyabai
l
eewi
thl
i
mit
edt
it
leand

powerofnegot
iat
ingi
t.

Thi
s,howev
er,
doesnotaf
fectt
her
ight
sofahol
deri
nduecour
se,
i.
e.
,i
fsuchan

i
nst
rumenti
snegot
iat
edt
oahol
deri
nduecour
se,t
hepar
ti
esl
i
abl
eont
he

i
nst
rumentcannotes
capel
i
abi
l
it
y(Sect
ions46and47)
.

Forexampl
e,i
fIgi
veachequet
oas
hopkeeperwi
tht
hecondi
ti
ont
hathes
houl
d

notencas
hthechequet
il
lhes
uppl
i
esmet
hegoods
,any
bodyencas
hingt
he

chequepr
iort
oful
fi
l
li
ngt
hecondi
ti
oni
sli
abl
etor
etur
nthemoneyexceptt
he

hol
deri
nduecour
se.

6.
Est
oppel
agai
nstdeny
ingor
igi
nal
val
i
dit
yofi
nst
rument(
Sec.
120)
:

Thepl
eaofor
igi
nal
inv
ali
di
tyoft
hei
nst
rument
;e.
g.
,t
hatnocons
ider
ati
onact
ual
l
y

pas
sedbet
weent
hemakerandt
hepay
eeofapr
omi
ssor
ynot
e;cannotbeput

f
ort
hagai
nstt
hehol
deri
nduecour
sebyt
hedr
awerofabi
l
lofexchangeor

chequeorbyt
hemakerofapr
omi
ssor
ynot
eorbyanaccept
orofabi
l
lfort
he

honouroft
hedr
awer
.

Howev
er,
theaf
ores
tat
edpar
ti
esar
enotpr
ecl
udedf
rom chal
l
engi
ngt
hev
ali
di
ty

oft
hei
nst
rumentont
hegr
oundt
hatatt
het
imeofmaki
ngt
hei
nst
rumenthewas

ami
nororhi
ssi
gnat
urehadbeenf
orgedort
hei
nst
rumenti
sot
her
wis
evoi
dab-

i
ni
ti
o,e.
g.
,wher
eapr
omi
ssor
ynot
eismade‘
pay
abl
etobear
er’
iti
svoi
dandi
l
legal

aspert
heRes
erv
eBankofI
ndi
aAct
.
7.
Est
oppel
agai
nstdeny
ingcapaci
tyofpay
eet
oindor
se:

“
Nomakerofanot
eandnoaccept
orofabi
l
lpay
abl
etoor
ders
hal
l
,inas
uit

t
her
eonbyahol
deri
nduecour
se,
beper
mit
tedt
odenyt
hepay
ee’
scapaci
ty,
at

t
hedat
eoft
henot
eort
hebi
l
ltoi
ndor
set
hes
ame”(
Sec.
121
).

Thus
,ahol
deri
nduecour
secancl
ai
m pay
menti
nhi
sownnamedes
pit
ethe

pay
ee’
sincapaci
tyt
oindor
set
hei
nst
rument
.AsperSect
ion51
,onl
ya‘
hol
der
’or

a per
son i
nlawf
ulpos
ses
sion oft
he i
nst
rumenti
s compet
entt
oindor
se.

Accor
dingl
y,aper
sonwhogott
hei
nst
rumentf
oragambl
i
ngdebtorf
orunl
awf
ul

cons
ider
ati
oncannotnegot
iat
ethes
ame.

Howev
er,
thehol
deri
nduecour
seenj
oysapr
ivi
l
egei
nthi
sregar
dandheget
sa

goodt
it
leev
eni
fhehol
dsanegot
iabl
eins
trumentendor
sedbyaper
sonwhogot

t
hei
nst
rumentf
orunl
awf
ulcons
ider
ati
onbecaus
eSect
ion1
21pr
ovi
dest
hatas

agai
nstahol
deri
nduecour
se,nomakerofanot
eandnoaccept
orofabi
l
l

pay
abl
etoor
ders
hal
lbeper
mit
tedt
odenyt
hepay
ee’
scapaci
tyt
oindor
set
he

s
ame.

CASELAWS:

1
I
nt eofGemi
hecas nivChandr
an,itwashel
dthatt
her
eisnopr
ovi
si
oni
ntheAct

i
nduecour
secanbepr
esumedt
obeahol
der
.Ther
eisapr
esumpt
ionbyv
irt
ue

ofSec1
18oft
heActt
hatahol
deri
sahol
deri
nduecour
sei
nsomes
peci
fi
c

s
ituat
ions
.Ther
efor
e,ahol
deri
nduecour
seandhol
derdonotmeant
hes
ame.

1
2007(
1)KHC698.
 2
I
nt eofMi
hecas l
indShr
ipadv
sKal
i
mKhan,itwashel
dthatas
uitf
orr
ecov
eryof

amounti
sli
abl
ethr
oughanegot
iabl
eins
trumentcanonl
ybef
il
edbyaper
son

whoi
sahol
deri
nduecour
seoft
henegot
iabl
eins
trument
.

2
(
201
1)4SCC275.