Facts of the Case
- A cheque is drawn by A, payable to “X or bearer.”
- The cheque is stolen by Y, who is not the rightful holder.
- Y negotiates the cheque to Z, who receives it in good faith and for value.
- X, the named payee, wants to recover the cheque or its amount from A.
Issues in the Case
- What is the effect of a cheque being made payable to “bearer”?
- Can X claim rights over the cheque once it is stolen and negotiated?
- Does A have liability to X if the cheque has already been paid to a third party in good faith?
Principles Associated With It
- Under Section 13 and Section 46 of the Negotiable Instruments Act, a bearer cheque is payable to the person in possession of the instrument.
- A cheque payable to “X or bearer” can be negotiated by mere delivery, without endorsement.
- If a bearer instrument is stolen, the person in possession (if a bona fide holder) can still get valid title, unless fraud is proved.
- The true owner (X) may not be able to claim the cheque from A if it has been validly paid to a bearer in due course.
Judgement
- Since the cheque is payable to “X or bearer,” it can be transferred by delivery alone.
- Z, if acting in good faith and for value, becomes a holder in due course, despite the theft.
- X cannot compel A to reissue or repay the cheque amount once it is paid to Z, unless Z was involved in the fraud.
- Therefore, X cannot recover the cheque or amount from A, as A has discharged his obligation by paying a valid bearer holder.