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CS Executive · Jurisprudence, Interpretation and General Laws · Law relating to Negotiable Instruments

A bill is drawn by Arun in California, where interest is 25%, and accepted by Bhavna payable in Washington, where interest is 6%. It is indorsed in India and dishonoured. The holder sues in India for interest. Absent any contrary contract, which statement is correct?

Bhavna is liable at 6% and Arun at 25%. Section 134 makes the drawer's liability depend on the law of the place of drawing, California, and the acceptor's on the law of the place of payment, Washington, so different interest rates apply to each.

  1. ABoth Bhavna and Arun are liable for interest at 25%
  2. BBoth Bhavna and Arun are liable for interest at 6%
  3. CBhavna is liable at 6% and Arun, as drawer, at 25%Correct
  4. DBhavna is liable at 25% and Arun at 6%

Explanation

Under Section 134 the drawer's liability follows the law of the place of drawing (California, 25%), while the acceptor's liability follows the law of the place of payment (Washington, 6%). The statute's illustration reaches the same result. Applying one rate to both parties ignores this split.

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