Q.4 What are the Liabilities of parties to a negotiable instrument?
Ans. LIABILITIES OF PARTIES
The liabilities of the parties to a negotiable instrument can be discussed under the following headings.
According to section 37 the drawer of the bill of exchange is liable as principal debtor before the acceptance of the bill. If a bill is given to third party by the drawer before the acceptance and after that it is not accepted, the drawer will be liable to third party.
(b) AFTER ACCEPTANCE
After the acceptance of the instrument, the position of the liability is as follows.
1. LIABILITIES OF ACCEPTOR
When bill of exchange is accepted by the drawee, he is liable to make payment of the instrument at or after maturity on demand.
2. LIABILITY OF MAKER
The maker of the promissory note and cheque is also liable as principle debtor before the payment of the document.
3. LIABILITY OF BANKER
When the customer of the bank duly issues the cheque and there are sufficient funds In his credit balance, the banker is bond to make payment.
4. LIABILITY OF ENDORSER
The other parties i.e. the immediate endorsers and the drawer of the bill after acceptances are liable thereon as sureties for the maker drawer or acceptor. Sec 37
5. PRIOR PARTY LIABLE TO SUBSEQUENT PARTY
As between the parties liable as sureties each prior party is, in the absence of the contract to contrary also liable thereon as a principal debtor in respect of each subsequent party. Sec 38
6. LIABILITY OF THE AGENT
An agent who sign or endorses a negotiable instrument without clearly signifying on it that he is signing only behalf of his principal is personally liable for the instrument.
7. LIABILITY OF LEGAL REPRESENTATIVE
A legal representative of a deceased person who signs a negotiation instrument is personally liable thereon unless he expressly limits is liability to the extent of the assets owned by him as such.
(c) AFTER DISHONOUR
When a negotiable instrument is dishonoured, following is the position of the liability of the parties.
1. LIABILITY OF DRAWER
The drawer of cheque and bill of exchange is bound to compensate the holder in case of dishonour of the instrument by the drawee or acceptor provided that a due notice dishonour is given to the drawer.
2. LIABILITY OF THE DRAWEE
When a cheque is duly issued by the drawer and is dishonoured by the bank provided that there are sufficient funds in drawer’s credit balance, the bank is bound to compensate to the drawer for any loss or damage caused to him due to such default. Sec 31
3. LIABILITY OF ENDORSER
Whenever the negotiable instrument is endorsed by any holder without in such endorsement, expressly excluding making conditional his own liability such endorser is bound to compensate subsequent for any loss or damage caused to him in case of dishonour of the instrument that due notice of dishonour has been given to such endorser.
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