Facts of the case
- B fraudulently obtains A’s acceptance on a bill of exchange.
- B then endorses the bill to C, who takes it in good faith and becomes a holder in due course.
- C subsequently endorses the bill to D, who is aware of the original fraud committed by B.
- D now seeks to recover the amount from A.
Issues in the case
- Whether D, who is not a holder in due course, can enforce payment against A.
- Whether the rights of a holder in due course (C) can be passed on to D, even though D had knowledge of the fraud.
Principles associated with the case
- Under the Negotiable Instruments Act, a holder in due course is one who obtains the instrument in good faith, for value, and without knowledge of any defect in title.
- A holder in due course acquires better title than the transferor and can enforce payment free from prior defects.
- Even if the instrument was originally tainted by fraud, a holder in due course can claim on it.
- The privileges of a holder in due course extend to all subsequent holders, even if they are aware of the original fraud.
- D, though not a holder in due course himself, derives title from C, who was a holder in due course.
Judgement
- D can recover the amount from A.
- The rights of the holder in due course (C) are passed on to D, despite D’s knowledge of the fraud.
- A is liable to pay as the defense of fraud is not available against a holder in due course or their legal successors.