54. Cheque is payable to R or Order. It is stolen and the thief forges R’s signature and presents it to the Banker who makes payment in due course. Can R recover the amount from the Bank?

Facts of the case

• A cheque is made payable to “R or Order.”
• The cheque is stolen by a thief.
• The thief forges R’s signature and presents the cheque to the banker.
• The banker pays the amount in due course to the thief.

Issues in the case

• Whether R can recover the amount paid by the banker against the forged endorsement.
• Whether the banker is liable for making payment on a forged cheque.

Principles associated with the case

• A banker must exercise due diligence in verifying endorsements before making payment.
• Payment made on a forged endorsement is generally considered a wrongful payment.
• Under the Negotiable Instruments Act, payment made under a forged endorsement is not a valid discharge of the banker’s liability to the true payee.
• The true payee (R) can recover the amount from the banker unless the banker can prove payment was made in good faith and without negligence.

Judgement

• R can recover the amount from the banker.
• The banker is liable for the wrongful payment as the payment was made on a forged signature.
• The banker failed to exercise proper care and due diligence in verifying the endorsement, thus cannot deny liability.