Monday, October 22, 2007

NI Act_Practical Problems_11

A debtor transfers to his creditor a negotiable instrument held by the debtor in full and final satisfaction of a debt which is barred by limitation. Would the creditor be a holder in due course of the instrument ?

This problem primarily requires to establish whether in the given case the holder of negotiable instrument (creditor) has secured it against lawful consideration or not. Under Section 25(3), a written promise to pay a time-barred debt shall be valid.

Such a promise though without consideration (since the debt having become time- barred, it is legally not payable) is held enforceable as an exception. Thus, in the given case, the holder should be considered as a holder for consideration. Other conditions of a holder in due course, satisfied, he should also be considered as a holder in due course.

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