Facts of the Case
- A bill payable to X or order was stolen by Y.
- Y forged X’s endorsement on the bill and negotiated it to Z.
- Z received the bill for value and in good faith, unaware of the forgery.
Issues in the Case
- Does Z acquire the status of a bona fide holder for value despite the forged endorsement?
- Can Z enforce the cheque and claim payment from the drawer or acceptor?
- What is the legal effect of a forged endorsement on the rights of subsequent holders?
Principles Associated with It
- Under Section 118(g) of the Negotiable Instruments Act, 1881, a forged endorsement is null and void and does not transfer title to the instrument.
- The true owner or the person entitled to enforce the instrument is the one whose genuine endorsement is on the bill.
- A person who takes the instrument under a forged endorsement does not become a holder in due course and has no right to claim payment against the drawer or acceptor.
- However, the negotiation through forgery is void, and the instrument remains the property of the original owner.
- The bona fide holder without notice of forgery does not obtain a good title if the endorsement is forged.
Judgement
- Z, despite taking the cheque in good faith and for value, does not acquire a valid title due to the forged endorsement by Y.
- Z cannot enforce the cheque against the drawer or acceptor because the endorsement is not genuine.
- The rights of Z are subject to the rights of the true owner, who can claim the instrument back or sue for its return.
- Therefore, Z does not have a bona fide title and cannot legally claim the amount on the cheque.