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Acceptance of bill drawn in fictitious name

Section 42 of the Negotiable Instruments Act,1881.

An acceptor of a bill of exchange drawn in a fictitious name and payable to the drawer’s order is not, by reason that such name is fictitious, relieved from liability to any holder in due course claiming under an indorsement by the same hand as the drawer’s signature, and purporting to be made by the drawer.

Under this section the acceptor is liable only to a holder in due course. That is to say, only the holder in due course can recover on instruments in which the drawer or payee is fictitious because law abhors fraud and discountenances any instrument whereby fraud can be committed. Whenever the name of a person is put in an instrument as payee, by way of pretence without any intention of any payment being made to him, the payee is a fictitious person although as a matter of fact such a person exists. The acceptor, for obvious reasons, cannot escape liability by proving that the drawer is a fictitious person for by accepting the bill he admits that he has funds of the drawer at his hands from where to make the payment. The only condition that attaches to the enforcement of this liability by the holder in due course is that such holder must claim under an indorsement by the same hand as the drawer's signature in the instrument.