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
drawers 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 payees 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
Holder
Title of the holder shall not
be good if the title of any
prior parties is defective.

Holder in Due Course

Holder 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 necessary

Consideration is not
necessary to be a holder of
an instrument
Enjoys special privileges.
A holder does not enjoy any
special privileges

A holder is a person who is He is a person who has

entitled in his own name to taken the instrument in
the possession of the
good faith and for value, and
instrument and to recover or also before its maturity.
receive the amount due

thereon from the parties.

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 marriageSd/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 bankers drafts.