2. A bill payable to X or order was stolen by ‘Y’ who forged endorsement and negotiated the cheque to Z. Z took the cheque for value in good faith. Will Z have a bonafide title to the cheque? Decide. 

Facts of the Case

• A bill is made payable to X or order.
• The bill is stolen by Y, who forges X’s endorsement.
• Y then negotiates the bill to Z.
• Z takes the bill in good faith and for consideration.

Issues in the Case

• Can a forged endorsement confer valid title to a negotiable instrument?
• Does Z acquire a bonafide title if he takes the bill for value and in good faith?
• What is the legal effect of forgery in the negotiation of order instruments?

Principles Associated With It

• A bill payable to “order” must be endorsed by the payee (X) for valid negotiation.
• Forgery passes no title under the law—a forged endorsement is a nullity.
• Even a holder in due course cannot acquire title through a forged endorsement.
• Section 58 of the Negotiable Instruments Act states that a person who obtains a negotiable instrument through forged endorsement acquires no title, even if obtained in good faith and for value.

Judgement

• Since the endorsement by Y was forged, the bill was never properly negotiated.
• Z, although acting in good faith and for value, does not obtain a valid title.
• Therefore, Z cannot claim as a holder in due course.
• The true owner X retains the title, and Z has no right to enforce payment on the bill.