Who is holder of a cheque

However, the holder's rights to the instrument shall not exceed those of his prior parties thereto. The term "prior parties" means other persons liable for a negotiable instrument who put their signatures thereon prior to the current signer or holder.

Article 12 A person who acquires a negotiable instrument by means of fraud, theft or coercion, or, with knowledge of the aforementioned situations, acquires the instrument out of ill intention shall have no right thereon. A holder who, by gross negligence, acquires a negotiable instrument that is not in conformity with the provisions of this Law, shall have no right thereon, either.

Article 13 A person liable for a negotiable instrument may not set up against the holder such defenses that are available as between himself and the drawer or between himself and the holder's prior party or parties, unless the current holder acquires the instrument with knowledge of the defenses. A person liable for a negotiable instrument may set up defenses against the holder who has a direct creditor-debtor relationship with him and does not perform the obligations agreed upon.

Article 14 Particulars recorded on a negotiable instrument shall be truthful and shall not be forged or altered. Whoever forges or alters the signature or other particulars recorded on an instrument shall bear legal responsibility. A forged or altered signature on a negotiable instrument shall not affect the effect of other true signatures thereon.

Where other particulars recorded on a negotiable instrument have been altered, a signer thereto before the alteration is made shall be liable for the particulars originally recorded, a signer thereto after the alteration is made shall be liable for the altered particulars.

Where it is hard to tell whether a signature is put before or after the alteration, it shall be deemed as one put before the alteration. Article 15 In the event a negotiable instrument is lost, the person losing it may promptly notify the drawer of the loss for the latter to stop payment thereof, unless no drawer is recorded on the instrument or it is hard to identify the drawer or his agent.

The drawer who receives notice to stop payment of the lost instrument shall suspend its payment. The person who loses the instrument shall, within three days after serving the stop-payment notice or after losing the instrument, apply to a People's Court according to law for making this exigency known to the public or bring an action in a People's Court.

Article 16 To exercise or preserve his rights on a negotiable instrument against the person who is liable for the instrument, the holder shall do it on the business premises of the party concerned and within the business hours, or at his domicile in the absence of business premises. Article 17 The rights on a negotiable instrument lapse, unless exercised within the following time limits: 1 two years from the date of maturity of the negotiable instrument for the holder against the drawer or acceptor; two years from the date of issue of a bill or a promissory note payable at sight for the holder against the drawer or acceptor; 2 six months from the date of issue of a cheque for the holder against the drawer; 3 six months from the date of non-acceptance or non-payment for the holder's right of recourse against the prior holders;or 4 three months from the date of settlement or filing a lawsuit for the holder's right of recourse against the prior parties.

The date of issue and the date of maturity of a negotiable instrument shall be determined by the parties thereto according to law. Article 18 The holder of a negotiable instrument who forfeits his rights thereon by reason of limitation of time or defects in specified particulars on the instrument still has civil rights and he is entitled to demand the drawer or acceptor to make a refund equivalent to the sum in the instrument not yet paid.

Bills of exchange include banker's bills and commercial bills. Article 20 "issue" means a drawer's signing of a bill of exchange and delivering of it to the payee. Article 21 The drawer of a bill of exchange must maintain a bona fide relationship of entrusted payment with the drawer and have a reliable source of funds to pay the amount of sum on the bill.

No one may sign and issue bills of exchange without consideration to defraud fund from a bank or other parties to the bills. Article 22 The following particulars shall be specified on a bill of exchange: 1 words expressing it to be a bill of exchange; 2 an unconditional order to pay; 3 a sum certain in money; 4 name of the drawer; 5 date of the payer; 6 date of issue; and 7 signature of the drawer. A bill of exchange is void if any of the above-mentioned particulars is not specified thereon.

Article 23 The date of payment, place of payment and place of issue,if specified on a bill of exchange, shall be legible and unambiguous. If the date of payment is not specified on a bill of exchange, the bill is payable at sight. If the place of payment is not specified on a bill of exchange, the business premises, domicile or habitual residence of the drawer is the place of payment.

If the place of issue is not specified on a bill of exchange, the business premises, domicile or habitual residence of the drawer is the place of issue. Article 24 Particulars relating to the issue of a bill of exchange other than those stipulated by this Law may be specified on a bill, however, such particulars shall have no effect on the bill. Article 25 The date of payment may be specified in one of the following manners; 1 payable at sight; 2 payable at a fixed date; 3 payable at a fixed period after the date of issue; or 4 payable at a fixed period after sight.

The date of payment stipulated in the preceding paragraph is the date of maturity of a bill of exchange. Article 26 A drawer who signs and issues a bill shall bear the liability for guaranteeing the acceptance and payment of the bill.

In the event the bill is not accepted or paid, the drawer shall pay off the sum and expenses, as stipulated in Articles 70and 71of this Law, to the holder of the bill. Section 2 endorsement Article 27 A holder may transfer his rights on the bill of exchange to another person or authorize another to exercise certain part of the rights on the bill.

Where a drawer writes "non-negotiable" on a bill of exchange, the bill shall not be negotiated. A holder shall endorse and deliver the bill of exchange when exercising the right stipulated in the first paragraph of this Article. Article 28 Where more space on a negotiable instrument is needed by the endorser for making entries, the instrument may be extended by an allonge annexed to it. The first entry maker of the allonge shall sign on the abutting edge. Article 29 An endorsement shall be signed and the date of endorsement specified by the endorser.

An endorsement without a specified date is deemed to be made prior to the date of maturity. Article 30 The name of endorsee shall be specified when a bill of exchange is endorsed to negotiate or when the exercise of certain part of the right thereon is endorsed to another.

Article 31 Where a bill of exchange is negotiated by endorsement, the endorsements shall be in succession. The holder shall prove his rights on the bill by an uninterrupted series of endorsements. A person who acquires a bill of exchange by lawful means other than endorsement shall provide evidence according to law to prove his rights thereon. The term "uninterrupted series of endorsements" as used in the preceding paragraph means that, in the course of negotiation of an instrument, the signature of each endorser negotiating the bill and that of the immediate prior endorsee acquiring the bill shall be the same person's.

Article 32 Where a bill of exchange is negotiated by endorsement, the subsequent party shall be liable for the authenticity of the endorsement of his immediate prior party.

A subsequent party means a person liable for an instrument who puts his signature thereto after it is signed by another. Article 33 No condition may be attached to the endorsement. Any conditions attached to the endorsement shall have no effect of a bill. An endorsement which transfers a part of the sum payable by the bill of exchange or separately transfers the sum payable by the bill to two or more endorsees shall be void.

Article 34 Where an endorser writes "non-negotiable" on a bill of exchange and his subsequent party negotiates it by endorsement, the endorser shall not bear responsibility for guaranty to the endorsee of the said subsequent party. Article 35 Where in an endorsement "by procuration" is written, the endorsee is entitled to exercise the mandated rights on the bill by endorsement.

A bill of exchange may be laid in pledge, provided that "value in pledge" is written in the endorsement when the bill is laid in pledge. The endorsee may exercise the right on the bill when exercising his right of pledge according to law. Article 36 A bill of exchange may not be negotiated by endorsement, if it is not accepted or paid or if the time limit for presentment for payment expires. The endorser shall bear liability on the bill if it is negotiated in spite of all this.

Article 37 An endorser is liable for guaranteeing the acceptance and payment of the bill of exchange held by his subsequent party after he negotiates the bill by endorsement. The endorser shall pay off the sum and expenses, as stipulated in Articles 70 and 71 of this Law, to the holder in case of non-acceptance or non-payment of the bill.

Section 3 Acceptance Article 38 "acceptance" is the act of a drawer of a bill of exchange who promises to pay the sum on the bill at the maturity of the bill. Article 39 Where a bill of exchange is drawn payable at a fixed date or at a fixed period after the date of issue, the holder shall present the bill to the drawer for acceptance before the date of maturity.

Article 40 Where a bill of exchange is drawn payable at a fixed period after sight, the holder thereof shall present the bill to the drawer for acceptance within one month after the date of issue. Where a bill of exchange is not presented for acceptance within the prescribed period, the holder thereof shall lose the right of recourse against his prior parties.

No presentment for acceptance is needed for a bill of exchange payable at sight. Article 41 In respect of a bill of exchange presented for acceptance, the drawer shall accept or refuse to accept it within three days after receipt of the bill. On receiving a bill of exchange presented for acceptance by the holder, the drawer shall write out a receipt to the holder.

The receipt shall specify the date of presentment for acceptance and shall be signed. Article 42 When accepting a bill of exchange, the drawer shall write "accepted" and the date of acceptance on the front of the bill and sign it. In the case of a bill of exchange payable at a fixed period after sight, the date of payment shall be recorded at the time of acceptance.

Where the date of acceptance is not specified on a bill of exchange, the last day of the period specified in the first paragraph of the preceding Article is the date of acceptance.

Article 43 When accepting a bill of exchange, the drawer may not attach any conditions thereto. An acceptance to which a condition is attached is deemed non-acceptance. Article 44 After accepting a bill of exchange, the drawer shall bear the liability for paying the bill at its maturity. Section 4 Guaranty Article 45 The liability on a bill of exchange may be guaranteed by a guarantor.

The guarantor shall be any person other than the one already liable for the bill. Article 46 A guarantor must specify the following particulars on the bill of exchange or on an allonge: 1 the word "guaranteed"; 2 the name and domicile of the guarantor; 3 the name of the guarantee; 4 date of guaranty; and 5 signature of the guarantor.

Article 47 Where the guarantor fails to specify Item 3 of the preceding Article on the bill of exchange or on the allonge, the acceptor is the guarantee for an accepted bill, and the drawer is the guarantee for a bill not yet accepted.

Where the guarantor fails to specify Item 4 of the preceding Article on the bill of exchange or on the allonge, the date of issue is the date of guaranty.

Article 48 No condition may be attached to a guaranty. A guaranty with conditions attached shall not affect the liability of guaranty on the bill of exchange. Article 49 The guarantor shall be liable for guaranteeing the holder's rights on the bill of exchange which the holder acquires lawfully, except for where the guarantee's debt is invalid because the particulars specified on the bill are incomplete.

Article50 Where a bill of exchange is guaranteed, the guarantor shall. Where payment is not made at the maturity of such bill, the holder is entitled to demand payment from the guarantor and the latter shall pay the bill in full.

Article 51 Where there are two or more guarantors, they shall undertake joint and several liability. Article 52 After the guarantor pays off the debt 9of the bill of exchange, the guarantor may exercise th eright of recourse as enjoyed by the holder against the guarantee and his prior parties. Section 5 Payment Article 53 The holder shall present the bill of exchange for payment within the following time limits: 1 one month after the date of issue for a bill payable at sight to be presented to the drawee; and 2 ten days after the date of maturity for a bill payable at fixed date, at a fixed period after the date of issue or at a fixed period after sight to be presented to the acceptor.

Where the holder fails to present the bill for payment within the prescribed period, the acceptor or drawee shall remain liable for the payment of the bill after the holder explains the situation. Presentment for payment made to the drawee through an authorized collecting bank or at a clearing system is deemed as presentment made by the holder. Article 54 The drawee shall pay the bill in full on the day when the holder presents the bill for payment in accordance with the provisions of the preceding Article.

Article 55 The holder shall receipt the bill and surrender it to the drawee when he receives payment. Where a holder authorizes a bank to receive payment on his behalf, the bill is deemed as receipted when the authorized bank credits the collected sum to the holder's account.

Article56 the liability of the bank authorized by the holder to receive payment shall be limited to crediting the sum on the bill to the holder's account according to the particulars specified on the bill. Article 57 When paying a bill, the drawee or his agent shall examine the uninterruptedness of the series of endorsement and the lawful identity certificate or the valid certificate of the person presenting the bill. The drawee or his agent who mades payment out of ill intention or with gross negligence shall bear liability on his own.

Article 58 Where the drawee makes payment before the date of maturity for a bill of exchange payable at a fixed date,. Article59 When the sum on a bill of exchange is expressed in a foreign currency, the sum shall be paid in renminbi according to the market exchange rate on the day of payment. Where the parties to a bill of exchange have agreed otherwise regarding the type of currency in payment, such agreement shall be complied with.

Article 60 After the drawee pays the bill in full according to law, all persons liable for the bill of exchange are discharged from liabilities. Section 6 Right of Recourse Article 61 Where the payment of a bill of exchange is refused at the date of maturity, the holder may exercise the right of recourse against the endorsers, the drawer and other persons liable for the bill. Prior to the date of maturity, the holder may also exercise the right of recourse under any of the following circumstances; 1 the bill is dishonoured by non-acceptance; 2 the acceptor or the drawee has died or escaped; or 3 the acceptor or the drawee is declared bankrupt according to law or is ordered to stop business activities for violation of law.

Article 62 When exercising the right of recourse, the holder shall provide relevant evidence of non-payment. Where the presentment for acceptance or the presentment for payment by the holder is rejected, the acceptor or the drawee must provide proof of dishonour or statement on reasons for dishonour. The acceptor or te drawee, who does not provide proof of dishonour or a statement on reasons for dishonour, shall bear civil liabilities deriving therefrom. Article 63 Where the holder is unable to obtain proof of dishonour on account of the death or escape of the acceptor or the drawee or for other reasons.

The holder may obtain other relevant evidence to law. Holder refers to a person, the payee of the negotiable instrument, who is in possession of it. A person, who is entitled to receive or recover the amount due on the instrument from the parties to that, whilst the holder in due course connotes a person who incurs the instrument for value and in good faith without having any knowledge of the defect in the title of the person transferring the instrument. In holder, consider is not necessary but in the holder in due course, it is of course necessary.

A holder cannot sue all the prior parties but a holder in due course can sue all the prior parties. The instrument is obtained regardless of good faith but holder in due course the instrument is only accepted in good faith. A person can become a holder before or after the maturity of negotiable instrument, on the other hand, a person can become holder in due course, only before the maturity of the negotiable instrument.

If the title of any of the prior parties was imperfect or defective the holder does not acquire good title but a holder due course acquires a good title even there was an error in the title of any prior parties.

The holder of a negotiable instrument is any person who is for the time being entitled in his own name and right to the possession of the instrument and to receive and recover the amount due on the instrument.

To sum it up every holder in due course is a holder but every holder in due course is not a holder. Holder in due course means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque is payable to bearer, or the payee or endorsee thereof, if payable to order before the amount mentioned in it became payable and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

A holder is entitled in his own name to the possession of the instrument, whilst a holder in due course acquires the possession of the instrument for consideration.

Law Times Journal. Tuesday, November 9, Sign in. Forgot your password? Get help. Privacy Policy.