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

Meena signs and delivers to Karan a stamped paper bearing an incomplete promissory note. The stamp covers Rs 50,000. Karan fills in Rs 40,000 and negotiates the note to Divya, a holder in due course. Meena had intended the note to be for Rs 25,000 only. What is Meena's liability to Divya?

Meena is liable to Divya for Rs 40,000. A signer of a stamped inchoate instrument is liable to a holder in due course for the amount written, so long as it stays within the stamp cover. Her private intention of Rs 25,000 does not defeat a holder in due course.

  1. ARs 25,000, being the amount she intended
  2. BRs 50,000, being the full amount covered by the stamp
  3. CNil, because the amount was filled in without her consent
  4. DRs 40,000, being the amount specified in the instrument and within the stamp coverCorrect

Explanation

Section 20 makes the signer liable to any holder in due course for the amount specified, provided it does not exceed the stamp cover. Rs 40,000 is within Rs 50,000, so Divya can recover Rs 40,000. The intended Rs 25,000 limit binds only against holders who are not in due course.

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