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Acceptor bound, although indorsement forged

Section 41 of the Negotiable Instruments Act,1881.

An acceptor of a bill of exchange already indorsed is not relieved from liability by reason that such indorsement is forged, if he knew or had reason to believe the indorsement to be forged when he accepted the bill.

The reason of the rule enunciated in the section is plain in that no person should be allowed to take advantage of his own fraud and shirk liability. When a person at the time of acceptance of an instrument knew or had reason to believe that the indorsement thereon was a forgery and with full knowledge of this fact became a party to the instrument he must be made liable for it and cannot be allowed to deny his liability on the ground of forgery. But for his knowledge of forgery at the time of his acceptance, he will not ordinarily be precluded by his acceptance from pleading that the indorsement is a forgery. An acceptor who has admitted the authenticity of the indorsement as true cannot afterwards refuse to honour it on the ground that it is forged. The acceptor cannot be allowed to prove against a bona fide holder for value that either the drawing or the indorsement is a forgery. The name may be that of a real or a fictitious person.