Module: General Practice
Q184: Scenario: A cheque is drawn by Mr. X in favor of Mr. Y. A thief steals the cheque, forges Mr. Y's endorsement, and transfers it to Mr. Z, who takes it for value and in good faith. Mr. Z presents it to the bank. Who is the "Holder in Due Course" in this scenario?
✅ Correct Answer: C
This question illustrates the severity of forgery.
While a "Not Negotiable" crossing merely limits the title, Forgery (Section 46/general principles) makes the signature a nullity.
Since the endorsement of Mr.
Y was forged, legally, no negotiation took place.
The chain of title was snapped.
Even though Mr.
Z acted in good faith and paid value, he cannot become a "Holder in Due Course" because he is not even a legal "Holder" (he does not have a valid title). The instrument is void in his hands regarding title.
While a "Not Negotiable" crossing merely limits the title, Forgery (Section 46/general principles) makes the signature a nullity.
Since the endorsement of Mr.
Y was forged, legally, no negotiation took place.
The chain of title was snapped.
Even though Mr.
Z acted in good faith and paid value, he cannot become a "Holder in Due Course" because he is not even a legal "Holder" (he does not have a valid title). The instrument is void in his hands regarding title.