Skip to content

CA Foundation · Business Laws · The Negotiable Instruments Act, 1881

Karan gives a promissory note for Rs 90,000 to Leela, payable on demand. Leela endorses it to Mohan, who presents it to Karan, but Karan refuses to pay. Mohan wants to hold Leela liable as an endorser. What must Mohan do?

Mohan must give notice of dishonour to Leela. An endorser is liable only if the holder informs her of the dishonour. The maker, Karan, is primarily liable and needs no notice, and there is no rule requiring a suit within 24 hours.

  1. AGive notice of dishonour to Leela, since she is a prior party whose liability depends on itCorrect
  2. BNothing, because an endorser is liable automatically once the maker refuses
  3. CGive notice of dishonour to Karan only, as the maker
  4. DFile a suit within 24 hours of dishonour, with no notice needed

Explanation

To charge an endorser, the holder must give notice of dishonour to that party. Without notice, the endorser is not liable to the holder. The maker, Karan, is primarily liable and needs no notice, so option C targets the wrong person. No 24-hour suit rule exists.

Did you get it right without looking?

One question tells you little. A timed set on The Negotiable Instruments Act, 1881 shows your real accuracy, how long you take and where you lose marks.

Practise The Negotiable Instruments Act, 1881Free diagnostic mock

More The Negotiable Instruments Act, 1881 questions