Privileges of a Holder in Due Course

Every holder is deemed prima facie to be a holder in due course. Thus, the responsibility of providing his title does not lie on him. It is for the defendant to prove it. A holder in due course has all rights and power of a holder and in addition holds the bill free from any personal defect of title of his immediate predecessors. The holder in due course of a promissory note can recover the amount of the promissory note from the maker and the payee, irrespective of their respective liability as between themselves.

For example, A, the holder of a Bill, indorses it to B, who is a minor (therefore cannot he made liable). The Bill is stolen from B by C who forges B’s indorsement and sells the Bill to D for value. D is a holder-in-due-course and is entitled to sue A and all parties prior to A such as the drawer, the acceptor and all prior endorsees, if any. He can also sue C but not B. This means that D holds the bill free from the defect in title caused by C’s theft and forgery.

In an inchoate stamped instrument, wherein, for instance, when the drawee fraudulently fills up a higher amount than what was intended by the drawer (but sufficiently covered by the stamp put on the instrument) and disposed of for value without anybody suspecting the fraud, the holder in due course is protected.

The acceptor of a bill of exchange, as against the holder in due course, cannot say that the other parties to the bill were fictitious.

The party liable to pay an instrument, cannot as against a holder in due course, contend that he had lost the instrument or that it was obtained from him by means of an offence or fraud, or for an unlawful consideration.

A holder who receives an instrument from holder in due course gets the rights of the holder in due course, even if he had knowledge of the prior defects, provided that he was not a party to them.

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