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

Anil signs and delivers to Bharat a stamped paper that is wholly blank, intending that Bharat will fill in Rs. 20,000. The stamp covers up to Rs. 1,00,000. Bharat fills in Rs. 60,000 as a promissory note and negotiates it to Chetan, a holder in due course. Which statement is correct?

Anil is liable to Chetan, the holder in due course, for Rs. 60,000, since the amount is within the stamp. Bharat, not being a holder in due course, cannot recover from Anil more than the Rs. 20,000 Anil intended.

  1. AAnil is liable to Chetan for Rs. 60,000, but Bharat cannot recover from Anil more than Rs. 20,000Correct
  2. BAnil is liable to Chetan only for Rs. 20,000
  3. CAnil is not liable to anyone because the paper was blank when signed
  4. DAnil is liable to Chetan for Rs. 1,00,000, the amount covered by the stamp

Explanation

On signing and delivering a stamped blank paper, Anil gives prima facie authority to complete a note for any amount not exceeding the amount covered by the stamp. He is liable to a holder in due course for that amount, here Rs. 60,000. But anyone other than a holder in due course cannot recover more than the amount intended, so Bharat is limited to Rs. 20,000. Option B wrongly limits liability to the intended amount against Chetan.

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