Facts of the Case
- A cheque is drawn as payable to M or order.
- The cheque is stolen by a thief, who forges M’s endorsement (signature).
- The forged cheque is presented to the bank, which makes payment in due course.
- M now seeks to recover the amount from the banker, as his endorsement was forged.
Issues in the Case
- Is the forged endorsement valid to transfer the title of the cheque?
- Does the payment by the banker in such a case qualify as a valid discharge?
- Can the bank be held liable for paying on a forged instrument?
Principles Associated With It
- Under Section 85(1) of the Negotiable Instruments Act, 1881, a banker is protected only when a cheque is endorsed by or on behalf of the payee in a genuine manner.
- A forged endorsement is void and conveys no title to the cheque.
- A payment made by the bank on a forged endorsement does not constitute a payment in due course as per Section 10.
- The bank, acting on a forged endorsement, acts at its own risk and has no protection under the Act.
- The true owner (M) retains the legal right to the amount and can sue the bank for wrongful debit/payment.
Judgement
- Since the endorsement was forged, it is legally ineffective.
- The bank cannot claim protection for a payment made under a forged endorsement.
- Therefore, M can recover the amount from the banker, as the payment was made without proper authority.