Holder for value: Person in possession of a negotiable instrument for which value has been given
Holder in due course: "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 indorsee 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.
Holder in due course: Essentials
A "bona fide holder for value" is the "holder in due course".
•Essentials:
1. Must be holder for consideration.
2. The Negotiable Instrument transferred to him before it becomes payable (overdue).
3. Must be transferred in good faith.
4. Should have no reason to believe that there existed any defect on the title of the person transferring it to him (transferor).
5. An executor of a will cannot be a holder in due course
Holder in due course: Rights
The holder in due course gets better title even if there was defect in title of transferor. In fact all defects are cleansed when the bill goes in the hands of holder in due course except in case where signature of endorser or maker or drawee was forged.
Hence the holder in due course has following advantages and protections:
(a) A person who had signed an inchoate instrument is liable to holder in due course for full value as provided under Section 20.
(b) Every prior party to the instrument is liable to holder in due course (section 36).
(c) Even if drawer is fictitious, acceptor is liable to holder in due course if signature of drawer and endorser as appearing in the bill tallies (section 42).
(d) Parties to instrument are liable to holder in due course or against subsequent holder even if it was an accommodation bill but the liability stands only to the consideration paid by him and not the full amount (section 43).
(e) Even if Bill of Exchange was delivered conditionally or for a specific purpose and not for purpose of transferring property in the bill absolutely, the holder in due course is still entitled for the amount of the Bill (section 46 para 3).
(f) Even if Bill was lost or was obtained from maker/acceptor/holder by offence or fraud for unlawful consideration the holder in due course is still entitled to get full amount of bill (Section 58).
(g) In a suit by holder in due course, maker of promissory note, drawer of bill of exchange or cheque and acceptor of bill for honour of drawer cannot deny validity of the instrument as originally drawn (Section
120).
(h) In a suit filed by holder in due course, maker of promissory note and acceptor of bill payable to order can not deny payee’s capacity to indorse the promissory note or bill (Section 121).
(i) Endorser can not deny signature or capacity of any prior party to the instrument (Section 122).