4. Privilege in case of Fictitious bills (Sec. 42):

When a bill of exchange is drawn in a fictitious name and is made payable to the

drawer’s order (i.e., where both drawer and payee of a bill are fictitious persons), the bill

is said to be a fictitious bill. Such a bill is not a good bill and cannot be enforced at law.

But the acceptor of such a bill is liable to a holder in due course provided the latter can

show that the first indorsement on the bill and the signature of the supposed drawer are

in the same handwriting.

5. Privilege when an instrument delivered conditionally is negotiated:

When a negotiable instrument is endorsed or delivered conditionally or for a special

purpose only, e.g., as collateral security or for safe custody, and not with the idea of

transferring absolutely property therein, the property in the instrument does not pass to

the indorsee, and he is merely a bailee with limited title and power of negotiating it.

This, however, does not affect the rights of a holder in due course, i.e., if such an

instrument is negotiated to a holder in due course, the parties liable on the instrument

cannot escape liability (Sections 46 and 47).

For example, if I give a cheque to a shopkeeper with the condition that he should not

encash the cheque till he supplies me the goods, anybody encashing the cheque prior

to fulfilling the condition is liable to return the money except the holder in due course.

6. Estoppel against denying original validity of instrument (Sec. 120):

The plea of original invalidity of the instrument; e.g., that no consideration actually

passed between the maker and the payee of a promissory note; cannot be put forth

against the holder in due course by the drawer of a bill of exchange or cheque or by the

maker of a promissory note or by an acceptor of a bill for the honour of the drawer.

However, the aforestated parties are not precluded from challenging the validity of the

instrument on the ground that at the time of making the instrument he was a minor or

his signature had been forged or the instrument is otherwise void ab-initio, e.g., where a

promissory note is made ‘payable to bearer’ it is void and illegal as per the Reserve

Bank of India Act.

7. Estoppel against denying capacity of payee to indorse:

in this case a holder in due course can claim the payment in his own name despite the payees

incapacity to indorse the instrument.Thus, a holder in due course can claim payment in his

own name despite the payee’s incapacity to indorse the instrument., only a ‘holder’ or a

person in lawful possession of the instrument is competent to indorse. Accordingly, a

person who got the instrument for a gambling debt or for unlawful consideration cannot

negotiate the same.

However, the holder in due course enjoys a privilege in this regard and he gets a good

title even if he holds a negotiable instrument endorsed by a person who got the

instrument for unlawful consideration.

Distinguishing Features between Holder and Holder in due Course HolderTitle of the holder shall not be good if the title of any prior parties is defective.

Holder in Due CourseHolder in due course shall have a good title even if the title of prior parties is defective. However condition is that he should obtain that title in good faith.

Consideration is not necessary to be a holder of an instrumentA holder does not enjoy any special privileges

Consideration is necessary Enjoys special   privileges.

  A holder is a person who is entitled in his own name to the possession of the instrument and to recover or receive the amount due thereon from the parties.

 He is a person who has taken the instrument in good faith and for value, and also before its maturity.

There are five kinds of endorsement:

1.         Blank endorsement: If the endorser signs his name only, the endorsement is said to be in

blank and it becomes payable to bearer, e.g. Mahbubul Haq.

2.         Special or Full endorsement: An endorsement “in full” or a special endorsement is one where

the endorser not only puts his signature on the instrument but also writes the name of a person

to whom or to whose order the payment is to be made. Example: Pay to Mr. Rafiqul Islam or

order-Sd/Sarafat All.

3.         Conditional endorsement: In conditional endorsement the endorser puts his signature under

such a writing which makes the transfer of title subject to fulfillment of some conditions of the

happening of some events. Example: Pay to Mr. Sarwar Jahan or order after his

marriage-Sd/Badrul Kamal.

4.         Restrictive endorsement: An endorsement is called restrictive when the endorser restricts or

prohibits further negotiation. Example: “Pay to Miss. / A. Pereira only” Sd/Hosne Ara.

5.         Partial endorsement: In Partial endorsement only a part of the amount of the bill is transferred

or the amount of the bill is transferred to two or more endorsees severally. This does not

separate as a negotiation of the instrument. The law lays down that an endorsement must relate

to the whole instrument. However, where the amount has been partly paid, a note to that affect

may be endorsed on the instrument which may then be negotiated for the balance. This is not

done in case of cheques or banker’s drafts.