Difference Between Holder and Holder in Due Course

The difference between a holder and a holder in due course of negotiable instruments is pivotal in understanding legal rights and entitlements. A holder, by definition, is an individual legally entitled to a negotiable instrument, obtaining it lawfully, but without the assurance of possessing a pristine title.

On the other hand, a holder in due course is an entity acquiring a negotiable instrument in good faith for consideration before its maturity, enjoying a secured position with a flawless title.

What is the Difference Between Holder and Holder in Due Course

The difference between a holder and a holder in due course lies in following aspects:

Meaning

A holder is a person who is legally entitled to a negotiable instrument and may or may not have obtained it lawfully.

On the other hand, a holder in due course (HDC) is an individual who acquires a negotiable instrument in good faith for consideration before it becomes due for payment.

Title

The title of a holder is contingent on the title of the prior party; if defective, the holder’s rights are also affected.

In contrast, a holder in due course is free from the defective title of the prior party, enjoying a secure title.

Possession

A holder may or may not be in possession of the negotiable instrument.

A holder in due course is always in possession of the instrument, reflecting a higher level of control.

Consideration

For a holder, consideration is not necessary for acquiring the negotiable instrument.

Conversely, a holder in due course requires consideration for obtaining the instrument.

Entitlement

A holder is entitled to the possession of a negotiable instrument in their own name.

A holder in due course must obtain entitlement in good faith for some consideration.

Good Faith

A holder may or may not obtain the negotiable instrument with bona fide intentions (in good faith).

However, a holder in due course always obtains the instrument with bona fide intentions.

Right to Sue

A holder doesn’t have the right to sue prior parties related to the transaction.

On the contrary, a holder in due course has the complete right to sue the prior parties.

Maturity of the Instrument

A person can become a holder either before or after the maturity of the instrument.

Conversely, a person can become a holder in due course only before the maturity of the instrument.

Here’s a table showing the differences between Holder and Holder in Due Course:

Case Laws on Difference Between Holder and Holder in Due Course

In the case of Milind Shripad Chandurkar v. Kalim Khan, it was established that the holder in due course is the only person who can file a suit for the recovery of the amount liable through that instrument.

The case of Braja Kishore Dikshit v. Purna Chandra Panda outlined prerequisites for a person to become a holder in due course of a negotiable instrument, emphasising the need for consideration, possession before maturity and a transferor in good faith.

In S V Prasad v. Suresh Kumar, it was held that the holder in due course obtains the right to recover the amount from the holder of the instrument and endorsement can take place without the participation of the maker of the instrument.