How Holder in Due Course Works in Insurance

The holder of a negotiable instrument means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon form the parties thereto.

A person is called the holder of a negotiable instrument if the following conditions are satisfied:

  • He must be entitled to the possession of the instrument in his own name and under a legal title.
  • He must be entitled to receive or recover the amount from the parties concerned in his own name.

The holder in due course is a particular kind of holder.

The holder of a negotiable instrument is called the holder in due course if he satisfied the following conditions;

  • The negotiable instrument must be in possession of the holder in due course. The negotiable instrument must be regular and complete in all respects.
  • He obtained the instrument for valuable consideration.
  • He becomes holder of the instrument before its maturity before the amount mentioned in it become payable.
  • He has no cause to believe that any defect existed in the title of the person from whom he derived his title.

What is Holder for Value

Where value of a bill has at any time been given its holder is deemed to be a holder for value as regards the acceptor and all parties to the bill who become parties’ prior to such time.

The person who claims himself for value needs not himself give value. It may give by prior party.

Differences between Holder and Holder in Due Course

The definition of the terms ’’holder” and holder in due course we may derive the following points of difference between them.

  1. Consideration: the existence of consideration is not essential in case of holder but a holder in due course obtains the instrument after paying its full value.
  2. Possession: the person entitled to be called holder in due course must become the possessor of the instrument before it become payable. Whereas in case of holder neither actual possession nor any time limit within which it must be acquired is required.
  3. Defect in the transferor’s title: the most important point of difference is that holder in due course acquires an instrument without having sufficient cause to believe that any defect existed in the title of the transferor.

    It means the holder in due course must obtain an instrument after taking all possible care about transferors’ good title. This condition is not essential in case of holder.