Multiple choice

Which of the following is not an essential requirement for a person to be called holder in due course?

  1. He should be in possession of the instrument.

  2. Possession must have been taken for a valuable consideration.

  3. Possession must have been obtained in good faith without any notice of defect in the title of the transferor.

  4. It must be an order cheque only.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to Section 9, “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 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.

The essential qualifications of a “holder in due course” may be summed up as follows:

  1. He must be a holder for valuable consideration. All the prerequisites of consideration should be met so as to result in a valuable consideration.
  2. That he became the holder of the instrument before its maturity. Thus, the person who takes a negotiable instrument after maturity does not become a holder in due course.
  3. That the instrument should be complete and regular on the face of it. Face here includes the back also.
  4. The last requirement is that the holder should have received the instrument in “good faith”. There are two methods of ascertaining a person’s good faith, “subjective” and objective”. Thus, option 4 is the correct answer. 

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