Facts of the case
- A is the holder of a bill and endorses it to B with an express instruction to get it discounted.
- Instead of discounting it, B negotiates the bill to C.
- C takes the bill in good faith and for valuable consideration, without knowledge of the restriction placed by A.
Issues in the case
- Whether C, who is unaware of the restriction, obtains a valid title to the bill.
- Whether the restrictive endorsement from A to B limits the rights of C.
- Can A deny C’s right to enforce the bill due to breach of condition by B?
Principles associated with the case
- Under the Negotiable Instruments Act, a holder in due course takes the instrument free from prior defects in title or unauthorized acts of predecessors.
- Even if the endorsement from A to B was conditional or restricted, a subsequent transferee (C) who takes the instrument in good faith, for value, and without notice of the condition, is protected.
- A holder in due course has an absolute right to recover the amount, and no prior agreement between A and B can be set up against C.
Judgement
- C is a holder in due course as he obtained the bill bona fide and for value, without knowledge of A’s instructions to B.
- C gets a better title than B and is legally entitled to recover the amount of the bill.
- A cannot deny liability to C on the ground that B breached the instruction, as C’s rights are protected under the law.