Differences between Holder & Holder-In-Due-Course

Various differences between holder and holder-in-due-course can be explained on the basis of the following

  • Entitlement
  • Maturity
  • Right to recover amount
  • Privileges
  • Consideration
  • Title
  • Notice of defect in the Title

1. Entitlement: Holder is a person who is entitled for the possession of a negotiable instrument in his own name. Hence he shall receive or recover the amount due thereon. Whereas a Holder-in-due-course is a person who has obtained the instrument for consideration and in good faith and before maturity.

2. Consideration: Consideration is not necessary to become a holder. The instrument may also be given by way of a donation or gift and thus, the donee of an instrument can also become a holder of it. However, consideration is a must to become a holder-in-due-course and thereby the donee of a negotiable instrument can be a holder but not holder-in-due-course.

3. Maturity: A holder may acquire the instrument even after its maturity. But a holder-in-due-course must acquire the instrument before its maturity failing which he will not enjoy the rights of a holder-in-due-course.

4. Title: A holder does not acquire a better title than that of transferor. In simple words, if the title of any of the prior party is defective, his title will not be defect free. Whereas, a holder-in-due-course derives a good title freed from all defects. His title is better than that of the transferor.

5. Right to recover amount: A holder has a right to recover the amount due on the instrument from the transferor (i.e., just preceding party) only from whom he has obtained the instrument. Holder-in-due-course, on the other hand, can recover the amount due on the instrument from any of the prior parties till the instrument is duly discharged. Thus, all prior parties shall remain liable towards the holder-in-due-course, jointly as well as severally, till the instrument is duly discharged.

6. Notice of defect in the Title: A holder-in-due-course is not only supposed to have acquired the instrument without any notice of the defect of the title of the person from whom he obtained it, but also there should be no cause on his part to believe that any defect sustains in the transferor’s title. But a holder is exempt from this condition. He may have notice of defect in the title but he shall not be liable for it unless he is a party to that defect, fraud, or forgery.

7. Privileges: A holder-in-due-course enjoys certain privileges under the Negotiable instruments Act (as discussed earlier), which are not available to a holder.

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