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    Wednesday, 11 January 2017

    Liabilities of parties to negotiable Instrument

    Every person capable of contracting, may bind himself and be bound by making, drawing, accepting, endorsing, delivering and by negotiating a negotiable instrument. A minor may drawn, endorse, deliver and negotiate such instrument so as to bind all parties except himself.

    Liabilities of various parties to a negotiable instrument

    Following are the liabilities of the various parties to a negotiable instrument are as follows

    i. Liability of a maker of a promissory note
    To maker of a promissory note is the principal debtor thereon. Hi is bound to pay the amount thereof on maturity. In default of such payment, such maker is bound to compensate any party to the promissory note for any loss or damage sustained by him and caused directly by such default. The maker of the promissory note cannot deny the validity of the instrument as originally made or drawn. Nor can he deny the payee’s capacity, at the date of the promissory note to endorse the same.

    ii. Liability of the Drawee or acceptor
    The liability of the drawee or acceptor of a bill of exchange is just like the liability of the maker of a promissory note. Since both occupy almost the same position, the acceptor is bound to pay the amount of the bill at maturity to the holder on demand. In default of such payment, such acceptor is bound to compensate any party to the bill for any loss or damage sustained by him and caused directly by such default. His liability is absolute, unconditional and independent of the death or insolvency of the drawer or of the fact of non-receipt of goods in respect of which he accepts the instrument. 

    Though a bill obtained by forgery cannot confer any title on its holder, yet the acceptor of a bill of exchange already endorsed is not relieved of liability by the reason that such endorsement is forged if he knows or has reason to believe the endorsement to be forged when he accepts the bill.
    The different between the liability of the maker of a promissory note and that to acceptor of a bill of exchange lies in the fact that while the maker is bound to pay according to the sense and purport (gist) of the promissory note, according to the acceptance and is under no obligation other than that created by the acceptance.

    iii. Liability of the Drawee Bank
    The drawee of a cheque having sufficient funds of the drawer in his hands, properly applicable to the payment of such cheques must pay the amount of the cheques when duly required to do so and in default of such payment, must compensate the drawer for any loss or damage caused by such default.

    vi. Liability of the Drawer
    The drawer of a instrument undertakes that the same shall be accepted by the drawee when presented for acceptance and paid by him when presented for payment on maturity.


    In case the bill if it is dishonored by non-acceptance or non-payment by the drawee or the acceptor respectively, the drawer is liable to compensate the holder provided due notice of dishonor has been given, or received by the drawer. The drawer remains the principal debtor on the bill so long as it is not accepted and on its acceptance he becomes a secondary debtor, the acceptor becomes the principal debtor. As the drawer makes the instrument, he cannot deny its validity in its original form.

    v. Liability of the endorser

    The endorser enters into a contract with the endorsee and through him to all the subsequent parties that the instrument shall be accepted when presented for acceptance or paid when presented for payment on due date and that in case of its dishonor, he shall compensate any subsequent holder for any loss or damage caused to him thereby, provided due notice of dishonor has been given to him. If the holder of the instrument weakens or destroys the endorser’s right against a prior party, the endorser shall be discharged from his liability.
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    Item Reviewed: Liabilities of parties to negotiable Instrument Rating: 5 Reviewed By: Usman Ali
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