Facts of the case
- A forces B at gunpoint (under coercion) to issue a bearer cheque in A’s name.
- A later delivers the cheque to C.
- C receives the cheque in good faith and for valuable consideration, without knowing about the coercion.
Issues in the case
- Whether a cheque issued under coercion is valid and enforceable.
- Whether C, who received the cheque from A without knowledge of the coercion, qualifies as a holder in due course under the Negotiable Instruments Act.
Principles associated with the case
- A holder in due course is someone who receives a negotiable instrument:
- For value
- In good faith
- Before maturity
- Without notice of any defect in the title of the transferor
- If a negotiable instrument is obtained by fraud, coercion, or undue influence, the title of the person obtaining it is defective.
- However, a holder in due course gets a better title than the transferor, even if the transferor’s title is defective.
- The defense of coercion is not maintainable against a holder in due course who had no knowledge of such coercion.
Judgement
- Yes, C is a holder in due course as he obtained the cheque in good faith, for consideration, and without knowledge of the coercion.
- C has the right to recover the amount on the cheque from B.
- B cannot set up the defense of coercion against C since C’s title is protected under the law as a holder in due course.