holder, holder in due course, payment in due course and material alteration.pptx

Holder, Holder in due course.

1. HOLDER, HOLDR IN DUE COURSE, PAYMENT IN DUE COURSE & MATERIAL ALTERATION PREPARED BY BABUL KUMER SAHA ROY GENERAL MANAGER (RETD.) AGRANI BANK PLC

2. HOLDER ◊ Section 8 of the Negotiable Instruments Act, 1881 defines “Holder” as “the holder of a promissory note, bill of exchange or cheque means any person entitled in this name to the possession thereof and to receive or recover the amount due thereon from the parties thereto”. ◊ Under this Act, before a person can claim to be the holder of a negotiable instrument, he should: a) be entitled in his own name to the possession of the instrument; and b) have the right to receive or recover the amount due on the instrument from the parties to the instrument.

3. HOLDER ◊ A person may be entitled to the possession of a negotiable instrument although he does not have actual possession . ◊ The term “Holder” under this Act implies de jure holder; not de facto holder. Actual possession is immaterial. ◊ Example, where a bill payable to order is, without endorsement, entrusted by the payee to his agent, the agent does not become the holder, the payee is entitled in his name to the possession of the instrument. ◊ A person who obtains possession of an instrument by illegal means is not a holder . ◊ A thief or a finder of a Negotiable Instrument or an endorsee with a forged endorsement though in the possession of the instrument cannot become its holder. ◊

4. WHO CAN BE THE HOLDER ◊ Bearer is the holder if in possession of the instrument. ◊ Payee is the holder named in the instrument. ◊ Endorsee is the holder mentioned in the instrument by means of endorsement. ◊ A person may, by operation of law, become a holder though he is not bearer, payee or endorser of the instrument . Thus, the heir or legal representative can claim to be the holder.

5. HOLDER IN DUE COURSE ◊ Section 9 of the Negotiable Instruments Act, 1881 defines “Holder in due course” as “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 payee or endorsee 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”.

6. HOLDER IN DUE COURSE ◊ A person claiming to be a holder in due course must show: a) That, for consideration he became the possessor of a negotiable instrument, when it is payable to bearer, or the payee or endorsee of the instrument when it is payable to order. b) That he became the holder of the instrument before the amount mentioned in it became payable. c) That he became the holder of the instrument, without having sufficient cause to believe that any defect existed in the title of the person from he derived his title.

7. DIFFERENCE BETWEEN HOLDER & HOLDER IN DUE COURSE (HDC) ASPECT HOLDER HOLDER IN DUE COURSE Meaning A person entitled to a negotiable instrument, obtained lawfully. An individual who acquires a negotiable instrument in good faith for consideration before it becomes due for payment. Title Subject to defective title of the prior party. Free from defects in the title of the prior party. Possession May or may not be in possession of the instrument. Always in possession of the instrument. Consideration Consideration is not necessary. Requires consideration for obtaining the instrument.

8. DIFFERENCE BETWEEN HOLDER & HOLDER IN DUE COURSE (HDC) ASPECT HOLDER HOLDER IN DUE COURSE Entitlement Entitled to the possession of the negotiable instrument in their own name. Must obtain entitlement in good faith for some consideration. Good Faith May or may not obtain the negotiable instrument with good faith. Always obtains the instrument with bona fide intentions. Right to Sue A holder is allowed to sue only the drawer and the person from whom he received the insturment . Has complete right to sue all prior parties. Maturity of the Instrument Can become a holder before or after the maturity of the instrument. Can only become an HDC before the maturity of the instrument.

9. FREQUENTLY ASKED QUESTIONS (FAQS) ◊ Can a holder sue all prior parties like a holder in due course? ◊ No, a holder can only enforce the instrument against the person who has signed it and the person from whom they received it. A holder in due course, on the other hand, can legally sue all prior parties to the instrument until the due amount is fully satisfied. ◊ Does a holder in due course acquire a good title even if there is a defect in the title of any of the prior parties to the instrument? ◊ Yes, one of the significant advantages of being a holder in due course is the protection against defects in the title of prior parties. Even if there is a defect in the title of any of the prior parties to the instrument, a holder in due course still obtains a good title to the instrument.

10. FREQUENTLY ASKED QUESTIONS (FAQS) ◊ Is consideration necessary for a holder in due course? ◊ Yes, a holder in due course acquires the instrument for value, which means they have paid something of value to obtain the instrument. This is not a requirement for a holder. ◊ Can a holder become a holder in due course? ◊ Yes, a holder can become a holder in due course if they meet the necessary conditions, such as acquiring the instrument in good faith, for value, and before its due date, and without any notice of a defect in the title of the person who transferred it.

11. PAYMENT IN DUE COURSE ◊ Section 10 of the Negotiable Instruments Act, 1881 defines “Payment in due course” as “ Payment in due course” means payments in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof, under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.

12. PAYMENT IN DUE COURSE ◊ A Negotiable Instrument is “paid in due course” when the following conditions are satisfied: a) The payment is according to the apparent tenor of the instrument (Tenor means the prescribed time of payment); b) The payment is in good faith and without negligence; c) The payment is to the possessor of the instrument; and d) That there does not exist any ground for believing that the possessor is not entitled to receive payment.

13. MATERIAL ALTERATION ◊ A material alteration to a negotiable instrument voids the instrument and affects the obligations of the parties. ◊ It occurs when any essential term is altered . ◊ Examples include changing the due date, or amount, time or place.

14. MATERIAL ALTERATION ◊ According to Section# 3(f) of the Negotiable Instruments Act, 1881: ◊ “Material Alteration” in relation to a promissory note, bill of exchange or cheque includes any alteration of the date, the sum payable, the time of payment, the place of payment and any such instrument has been accepted generally, the addition of a place of payment without the acceptor’s assent”.

15. WHAT CONSTITUTES MATERIAL ALTERATION The following alterations in the element of a negotiable instrument are deemed to be material alteration: ◊ Alteration of the date of the instrument. ◊ Alteration of the sum payable. ◊ Alteration in the time of payment. ◊ Alteration of the place of payment.

16. WHAT CONSTITUTES MATERIAL ALTERATION In addition, alteration also includes ◊ Alteration of the rate of interest. ◊ Addition of the new party to the instrument. ◊ Addition of words to a bill of exchange, endorsed in blank. ◊ The insertion of the place of payment. ◊ O bliteration of crossing of a cheque.

17. EFFECT OF MATERIAL ALTERATION ◊ Section 87 of N I Act, 1881 says: ◊ Any material alteration of a negotiable instrument renders the same void as against any one who is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties; Alteration by endorsement: Any material alteration, if made by a endorsee, discharges his endorser from all liability to him in respect of the consideration thereof. ◊ The provisions of this section are subject to those of sections 20, 49, 86 and 125.

18. EFFECT OF MATERIAL ALTERATION ◊ The essentials for the application for the section 87 are: ◊ Alteration which is material; ◊ Alteration is made after the instrument is executed ; ◊ Absence of consent of a party liable under the instrument; and ◊ Alteration does not incorporate the common intention of the parties.

19. EFFECT OF MATERIAL ALTERATION ◊ It is seen from the section 87 that when an instrument is materially altered , any party liable on it at the time of alteration is discharged if he does not consent to it. ◊ If the alteration is authenticated by the maker or drawer, the instrument continues to be valid or gets back its validity. ◊ Crossing- a material part: An alteration of crossing of a cheque in a manner not authorized by law or obliteration thereof would be considered as material alteration. ◊ The addition of the word “Account Payee” to a crossing does not constitute a material alteration; but an unauthorized erasure of the “Account Payee” crossing constitutes a material alteration.

20. HOLDER, HOLDR IN DUE COURSE AND PAYMENT IN DUE COURSE Thank you for your kind attention