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CS Executive · Jurisprudence, Interpretation and General Laws · Law relating to Negotiable Instruments

Gopal, a holder in due course, indorses a note to his brother Hari, who knew that the original maker had been defrauded by an earlier party, though Hari gave no value. Hari sues the maker. Under the Act, which statement is correct?

Hari has the rights of a holder in due course because he derives title from Gopal, who was one. Section 53 passes those rights to the transferee. Hari is not himself a holder in due course, as he gave no consideration and knew of the defect.

  1. AHari has the rights of a holder in due course under Section 53, as he derives title from oneCorrect
  2. BHari is a holder in due course in his own right because he is a relative
  3. CHari has no rights at all, because he gave no value
  4. DHari can recover only the amount he paid, which is nil

Explanation

Section 53 provides that a holder who derives title from a holder in due course has the rights of that holder in due course. Hari's own knowledge of the earlier fraud does not alter this, though he is not himself a holder in due course because he gave no consideration and had notice. The second option is wrong as relationship is irrelevant to Section 9.

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