Facts of the Case
- B fraudulently obtains A’s acceptance to a bill of exchange.
- B endorses the bill to C, who takes it in good faith and for value (i.e., C is a holder in due course).
- C further endorses the bill to D.
- D knows about the fraud when receiving the bill.
Issues in the Case
- Whether D, having knowledge of the fraud, can claim a better title.
- Whether the taint of fraud affects the title of D despite the bill passing through a holder in due course (C).
- Whether A is liable to D.
Principles Associated with It
- Under Section 53 of the Negotiable Instruments Act: a holder deriving title through a holder in due course gets the rights of the latter.
- A holder in due course obtains the instrument free from all defects of title of prior parties.
- Once the instrument is negotiated to a holder in due course, the title becomes purified.
- Even subsequent holders, despite having notice of prior fraud, can claim under the purified title.
Judgement
- D, though aware of the fraud, can still recover the amount from A.
- Since D received the instrument through C (a holder in due course), he inherits C’s clean and valid title.
- A is liable to pay D, despite the initial fraud by B.