Introduction

Negotiable instruments are documents used in commercial and financial transactions to secure the payment of money. They entitle the holder to payment of the sum stated in the face of the document. A negotiable instrument is a proof of a right that is not tangible. It entitles the transferee to have a title superior to that of the transferor, provided he takes the instrument complete and regular on the face of it, before it is overdue, in good faith and for value. Types of negotiable instruments includes: Bills of exchange, cheques and promissory notes. The primary parties to a negotiable instrument include the drawer, drawee and the payee. The first transfer of an instrument from the drawer or maker to the first holder is not a negotiation but an issue.[1] This essay focuses and points to the different legal directions surrounding a holder. 

Who is a Holder?

A holder has been generally defined as ‘the payee or endorsee of a bill or note, which is in possession of it, or the bearer thereof.’[2]From this definition, it does not mean that a holder of bill payable to bearer cannot be called a holder. A bill payable to bearer is negotiated by mere delivery.

It is a necessary requirement that a holder must be in possession of an instrument. However, not everyone who is in possession of an instrument can constitute a holder. For example, a person who takes an order bill bearing a false endorsement cannot be a holder. This is because an act of forgery cannot confer good title.[3]

In Bank of the North ltd v. Alhaji Balayau[4]. it was held that whether or not a bank is a holder is not a matter of assumption. The fact must be averred and proved.  Where a thief negotiates an instrument which was originally genuinely made payable to bearer, he will confer a good title on a holder for value who took bonafide. To acquire the power to sue in his own name, the possessor of an instrument must be a holder.

Holder For Value

A holder for value is one who gives valuable consideration for a bill (which may be an antecedent debt), or who has lien thereon, or who claims through a holder for value. Section 27(2) of the Bills Exchange Act provides that ‘where value has at any time been given for a bill, the holder is deemed to be a holder for value as regards the acceptor and all parties to the Bill who are parties prior to such time’. This contradicts the principle that consideration must flow from the promisee.

In Diamond v. Graham[5], the court of appeal decided in favour of a party who held an instrument supported by value given by someone else. It was held that he could enforce payment against the drawer. A person who becomes a holder for value by virtue of a lien becomes a pledgee, who as a general rule may not sell or negotiate the instrument, the property in which still resides in the pledgor.

A pledge may be contrasted with a discounter. While a pledgee becomes a holder for value only to the extent of the debt, a discounter is a holder for value, to the extent of the full value of the bill.

Holder In Due Course

A holder in due course is someone who accepts a negotiable instrument in a value for value exchange without reason to doubt its legitimacy. A holder in due course acquires the right to make a claim for the instrument’s value against its originator and intermediate holders. Even if one of these parties passed the instrument in bad faith or fraudulent transaction, a holder in due course may retain the right to enforce it.[6]

According to Section 29(1) of the Bills of Exchange Acta holder in due course is a holder who has taken a bill, complete and regular on the face of it, under the following conditions;

• That he becomes the holder of it before it was overdue, and without notice that it has been previously dishonoured.
• That he took the bill in good faith and for value, and that as at the time that the bill was negotiated to him, he had no notice of any defect in the title of the person who negotiated it.[7]

Fora holder to be called a holder in due course, there are some requirements that must be fulfilled. The first of which is the instrument in question must be a bill, which must be complete and regular on the face of it.

Negotiation of such bill must take place and such negotiation will be effective if it was done before it becomes overdue. The holder must take it in good faith, without any notice of dishonour. The holder in due course must have himself given a consideration and not be aware or have notice of defect in title to the bill in question.[8]

A holder, whether for value or not, who derives his title to a bill through a holder in due course, and who is not himself a party to any fraud or illegality affecting it, has all the rights of that holder in due course, as regards the acceptor, and all parties to the bill, prior to the holder. A holder, who derives his title from a holder in due course, is precluded from enforcing an instrument affected by fraud or illegality, only if he was himself a party to it.[9]

However, a person need not necessarily fulfil all the requirement of section 29(1) to get a good title to an instrument. Where there has not been a prior irregularity, defect in title or equity, the holder of an instrument will invariably be the true owner of it. It is only where lack of title, defect in title or equities have existed that section 29 becomes important. Only by complying with it, will a holder be free from defects in title of prior parties and be, in fact the true owner.[10]

Having considered this, it is worthy of note to consider the rights and duties of a holder.

Rights and Duties of Holder

Basically, a holder whether for value or in due course, has some entitlements or benefits even though this may be limited in some cases.  The source of these empowerments could be linked to Section 38 of the Bills of Exchange Act.[11] These rights entitled to a holder are activated upon the fulfilment of some obligations stipulated in the Act. These rights (with their interpretations) as stated in Section 38 of the Act are enthused as follows:  

(a)   He may sue on the bill in his own name (whether as for value or in due course).

Possession of the bill is of the essence here. This subsection is not concerned to give a holder any right of action on the bill but merely entitling him to sue in his own name. In Stock Motor Ploughs Limited v. Forsyth[12], Harvey J. quipped thus: ‘whether the holder can sue or not in the sense of can he recover or not, depends on his title to the note and the facts known to him when he became the holder and this sub-section is not addressed to any question as that’.

(b)   Where he is a holder in due course, he holds the bill free from any defect of title of prior parties, as well as from mere personal defences available to prior parties among themselves, and may enforce payment against all parties liable on the bill.

This subsection accords a prima facie ‘undefeated title’ and a ‘true owner look’ to a holder in due course. From the basis of this, he has a perfect rejoinder to all persons liable on the bill. The holder of the bill has a cause of action against the drawer and not the drawee, unless in cases where the law expressly rules out the drawer of any liability.

(c)   Where his title is defective- (i) If he negotiates the bill to a holder in due course, that holder obtains a good and complete title to the bill, and (ii)  if he obtains payment of the bill the person who pays him in due course gets a valid discharge for the bill.

The first aspect of this subsection comes as a result of negotiability. In relation to a holder in due course it means that the bill has been transferred to him free from equities as a purchaser for value and without notice of any defect in title of which a holder in due course already has. The second aspect is crystal clear as it simply points out to a kind of ‘give me-give you’ principle. That is, something in exchange for another.

Having stated the rights provided, the duties by these rights are activated are provided for in the Bills of Exchange Act. The holder is to present the bill for acceptance or to negotiate it within a reasonable time (determined based on the nature of the bill, the usage of trade, and the facts of the particular case), in the absence of which the drawer and all endorsers are thereby discharged.[13]

The holder of a bill or anyone authorised to receive payment, has the duty to present it for payment, the absence of which the drawer and the endorsers are thereby discharged. To complement, the holder will be left hanging as he cannot make claim against anyone.[14]

In the case of a dishonoured bill whether by non-acceptance or by non-payment, the holder must give notice of the dishonour to the drawer and each endorser. Any drawer or endorser to whom such notice is not given is discharged[15].

The holder has the responsibility of noting it, if it is an inland bill or protesting if it is a foreign bill where it has been dishonoured for any reason[16].  

For a holder of a bill to relinquish or abandon his right under the bill, it must be done in writing. An oral agreement is not sufficient, let alone a waiver by conduct. The evidence must manifest that of the holder[17].

Conclusion 

This paper has discussed the idea hovering holder and its legal variants. The major light shown in this area is undoubtedly settled in the Bills of Exchange Act[18]. This paper tackles the nook and cranny by which a person can be a holder, most especially for value and in due course. The paper crowns it all by discussing the rights and duties entitled to a holder and points out where each rights and duties is applicable.

Basically, as given credence to in the said act[19], a holder is ‘the payee or endorsee of a bill or note, which is in possession of it, or the bearer thereof.’[20] This definition clearly indicates that a holder must be in possession of the instrument. However, not everyone who is in possession of an instrument can constitute a holder. A holder is essentially of two types. One can be a holder for value or a holder in due course.

A holder for value is one who gives valuable consideration for a bill (which may be an antecedent debt), or who has lien thereon, or who claims through a holder for value[21]. This explanation is clearly evident when linked to Section 27(2) of the Bills Exchange Act provides that ‘where value has at any time been given for a bill, the holder is deemed to be a holder for value as regards the acceptor and all parties to the Bill who are become parties prior to such time.’This obviously goes against the principle that ‘consideration must flow from the promisee.

A holder in due course is someone who accepts a negotiable instrument in a value for value exchange without reason to doubt its legitimacy. A holder in due course acquires the right to make a claim for the instrument’s value against its originator and intermediate holders. The Bills of Exchange Act provides conditions in which a person can be a holder in due course.[22] They are: (a) that he becomes the holder of it before it was overdue, and without notice that it has been previously dishonoured.(b) that he took the bill in good faith and for value and that as at the time that the bill was negotiated to him; he had no notice of any defect in the title of the person who negotiated it”.

However, being a holder in due course does not stop at that lane as the Act stipulated some requirement to be fulfilled which this paper stipulates.

The Bills of Exchange Act also provides for some rights (although may be limited) of a holder which is linked to Section 38 of the Act. However, these rights provided for are activated upon the fulfilment of some duties which is expected of a holder. (a) He may sue on the bill in his own name (whether as for value or in due course).(b) Where he is a holder in due course, he holds the bill free from any defect of title of prior parties, as well as from mere personal defences available to prior parties among themselves, and may enforce payment against all parties liable on the bill.(c) Where his title is defective- (i) If he negotiates the bill to a holder in due course, that holder obtains a good and complete title to the bill, and (ii)       if he obtains payment of the bill the person who pays him in due course gets a valid discharge for the bill.The duties expected from the holder pertain to presentment of bill for acceptance[23]; Notice of the dishonour to the drawer[24]; Responsibility of noting it, if it is an inland bill or protesting if it is a foreign bill where it has been dishonoured for any reason[25]. 

 

 

 

REFERENCES

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[1]Section 2 Bills of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004; Jones Ltd v. Waring & Gillow Ltd(1926) A.C 670.

[2]Section 2 Bills of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004.

[3]Section 24 Bills of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004 provides that

“subject to the provisions of this Act, where a signature on a bill is forged or placed thereon without the authority of the person whose signature it purports to be, the forged or unauthorised signature is wholly inoperative, and no right to retain the bill or to give a discharge therefore or to enforce payment thereof against any party thereto can be acquired through or under that signature, unless the party against whom it is sought to retain or enforce payment of the bill is precluded from setting up the forgery or want of authority:

Provided that nothing in this section shall affect the ratification of an authorised signature not amounting to a forgery.”

[4](2001) 6 SCM 10.

[5](1968) 1 WLR 1061

[6]<https://en.wikipedia.org/wiki/Holder_in_due_course> (Last Accessed 8:09PM, 13/02/20).

[7]Section29(1) of Bills of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004.

[8]Section 92 of Bills of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004.

[9]Section 27(1) (a) (b) of Bills of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004.

[10]Oliver v. Davis (1949)2 K.B 727; Section 29(2) of Bills of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004.

[11] Chapter B8, Laws of the Federation of Nigeria 2004.

[12] (1932) 32 S.R.

[13] Section 40 of the Bills of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004.

[14] Section 45 of the Bills of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004.

[15] Section 48 of the Bills of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004.

[16] Section 51 of the Bills of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004

[17] Auto Import Export v. J.A.A. Adebayo &Ors (2005) 12 SCM 110.

[18] Chapter B8, Laws of the Federation of Nigeria 2004

[19]Section 2 Bill of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004.

[20]Section 2 Bill of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004.

[22]Section 29(1) of the Bills of Exchange Ac tChapter B8, Laws of the Federation of Nigeria 2004.

[23] Section 40 of the Bills of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004.

[24] Section 48 of the Bills of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004.

[25] Section 51 of the Bills of Exchange Act Chapter B8, Laws of the Federation of Nigeria 2004.