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

Kiran signs and delivers to Lata a properly stamped paper, otherwise blank, with the stamp covering Rs. 50,000. Lata fills it in as a note for Rs. 40,000 payable to herself. Under Section 20 of the Negotiable Instruments Act, 1881, what is Kiran's position?

Kiran is liable on the instrument. By signing and delivering a stamped blank paper, he gave prima facie authority to complete it for any amount up to the stamp cover of Rs. 50,000, so a Rs. 40,000 note is within that authority.

  1. AKiran is not liable, because the paper was blank when signed
  2. BKiran is liable only if the paper was stamped for exactly Rs. 40,000
  3. CKiran gave prima facie authority to complete the instrument for any amount not exceeding the stamp, so he is liable on it as signedCorrect
  4. DKiran is liable only after Lata obtains his written consent to the amount

Explanation

Section 20 gives the holder prima facie authority to complete a signed and delivered stamped inchoate paper for any amount within the stamp cover. Rs. 40,000 is within Rs. 50,000, so Kiran is liable in the capacity in which he signed. Against a person who is not a holder in due course, recovery is limited to the amount he intended.

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