Business law analysis

Posted: August 13th, 2013





Difference between Holder and Holder in Due Course

A holder is entitled to the possession of an instrument in his own name. The holder in due course, on the other hand, takes possession of the instrument before it is overdue. Holder refers to a person entitled to the ownership of a negotiable instrument. The holder possesses the right to take possession or receive the equivalent amount from those mentioned in the instrument. The holder in due course, on the other hand, refers to the person who becomes the owner of a negotiable instrument due to the consideration paid before the instrument matures. The holder in due course receives the possession of the instrument in due faith convinced that there are no defects with the instrument or its previous holders.

The holder in due course can only obtain possession of an instrument with consideration and for due value while the holder does not require consideration. The holder can take ownership of a payable instrument while a person who acquires an instrument when it is payable, does not qualify to be a holder in due course. The holder of an instrument need not bother of any defects in the instrument. On the other hand, a person aware of a defect in the instrument cannot become the holder in due course. The holder of the title does not acquire a better title than the previous owner. The holder will not have a better title even if he acquired the instrument with certain defects. The holder in due course, on the other hand, acquires a better title from the previous holder.

Several characteristics qualify one to be a holder of a negotiable instrument. First, the person must be a principal with their name appearing on the face of the instrument as the holder even though is executed by an agent. In the case of a bearer instrument, the person in possession of the instrument becomes the holder. A negotiable instrument with the name of a firm partner automatically places the firm as holder. The firm and the partner are treated as one entity. The person who endorses a check is also known as a holder. The heirs of a deceased holder automatically become holders. If am unnamed promissory note is delivered to a principal’s agent, the principal automatically becomes the holder even without an imprint of his name on the note.

It is easier to perform business because the holders and the holders in due course reserve the right to sue for defects in the instrument. This prevents fraud in the use of instruments. The holder, in due course, can sue all previous parties while the holder can only sue immediate previous owners of the instrument. This plays a significant role in securing transactions from unnecessary defects or errors. The right to transfer the instrument also eases business transactions since holders of instruments can transfer ownership before maturity to the holders in due course. Thus, a principal who wants to transfer the instrument before the given time is .allowed by law to do so

Case 22.1

Negotiable instruments allow the transfer of money in terms of money representatives. A note is an example of a promise to pay. The maker of the note refers to the signer or the person referred to in the note as the payer of the specified amount. The maker makes a promise to pay the bearer of the instrument as recorded in the note. A negotiable instrument contains an order to pay and a promise to pay. In the case of the McGuire’s and the Tursis, it is imperative to identify the inherent qualities of negotiable instruments, and whether in view of these characteristics, they form an order to pay or a promise to pay.

For a note to be a promise to pay, it must contain an unconditional and express promise to pay from its maker. An acknowledgement of a debt without a promise to pay does not constitute a promise to pay. The note must therefore contain an obligation to pay. An order to pay, on the other hand, contains the maker’s order to pay the payee. The order to pay is unconditional and directs the maker to pay a payee. The order to pay must be written in simple language and must contain the word ‘pay’. The language on the note must show an express notification to the drawer to pay rather than an acknowledgement. The order to pay must also contain the name of the person required to pay the amount on its face.

The McGuire’s note is a case of a promise to pay. In the promissory note signed by the McGuire’s is a written express promise to pay the Tursis. The note is a promise to pay since the McGuires affirm their promise to pay as directly written in the note. The promise is not implied but rather expressly written in the note. The McGuires promise to pay the Tursis the amount of $65000 at their request. The instrument is thus negotiable since it contains an affirmed desire to pay the amount at the request of the payee.

The instrument does not constitute an order to pay since it does not contain an express order to pay but a promise to pay. The McGuires promissory note is directed to the Tursis and therefore does not qualify to be an order to pay. In addition, an order to pay is a request to the drawee to pay a specified amount of money to the payee. There is no such express order to the McGuires since they are the drawees in this case. There is no precise instruction that implies an order to pay. There is no drawer stated in the note hence disqualifying the promissory note from being an order to pay.

The promissory note however still qualifies as a negotiable instrument. The promise to pay alone makes it a negotiable instrument. The McGuires express their unconditional promise to pay the Tursis the remaining amount of the contract. This promise is precise and expressed in writing, hence cannot be disputed as a promise to pay.






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