X needs Rs.10,000 but cannot raise this amount because his credit is not good enough. Y whose credit is good, accomodates X by giving him a pronote made out in favour of X, though Y owes no money to X. X endorses the pronote to Z for value received. Z who is a holder in due course, demands payment from Y. Can Y refuse and plead the arrangement between him and X?
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According to Section 120 of the Negotiable Instruments Act, in a suit by holder in due course, maker of a promissory note and no drawer of a bill of exchange or cheque are not permitted to deny the validity of the instrument, as originally made or drawn. Thus, Z is entitled to receive payment on the instrument.
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