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.