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CSEET · Business Laws and Management · Elements of Law relating to Negotiable Instruments

Anil signs and delivers to Bharat a paper bearing a stamp that covers up to ₹50,000, with an incomplete promissory note written on it. Bharat completes it for ₹40,000 and transfers it to Chitra, a holder in due course. Anil had intended to pay only ₹25,000. Which statement is correct?

Anil is liable to Chitra for ₹40,000. Section 20 lets the holder complete an inchoate stamped instrument up to the stamp cover, and the signer is liable to a holder in due course for that amount, not merely the amount he intended.

  1. AAnil is liable to Chitra for ₹40,000Correct
  2. BAnil is liable to Chitra for ₹25,000 only
  3. CAnil is liable to Chitra for ₹50,000
  4. DAnil is not liable as the note was incomplete

Explanation

Under Section 20, the signer gives prima facie authority to complete the instrument for any amount within the stamp cover. He is liable to a holder in due course for that amount. Only a person who is not a holder in due course is restricted to the amount intended. ₹40,000 is within ₹50,000, so Chitra recovers ₹40,000.

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