10. A bill payable to X or order was stolen. Y forged X’s endorsement and endorsed it to Z who takes it for value and in good faith. Shall Z acquire a good title for it?

Facts of the Case

  • A bill is drawn payable to X or order.
  • The bill is stolen, and Y forges X’s endorsement.
  • Y then endorses the bill to Z, who takes it in good faith and for value.
  • Z now seeks to enforce the bill based on his possession and good faith.

Issues in the Case

  • Does a forged endorsement on an order bill pass valid title?
  • Can a person who takes the bill in good faith and for value acquire a good title, despite the forgery?
  • What are the legal consequences of forgery in negotiable instruments?

Principles Associated With It

  • A bill payable to “X or order” requires a valid endorsement by X to be lawfully negotiated.
  • Under Section 58 of the Negotiable Instruments Act, a forged endorsement passes no title, even if the transferee takes it in good faith and for value.
  • Forgery is considered a nullity in law, and no rights flow from such an endorsement.
  • A holder in due course cannot acquire rights through a forged endorsement, as it is treated as no endorsement at all.

Judgement

  • Since the bill was payable to “X or order”, a genuine endorsement by X was essential for valid negotiation.
  • Y’s endorsement was forged, and therefore, invalid.
  • Z, despite taking it in good faith and for consideration, does not acquire a good title.
  • The bill remains unenforceable, and Z cannot claim payment on the basis of the forged endorsement.

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