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CMA Intermediate · Business Laws and Ethics · Negotiable Instruments Act, 1881

Mehta Exports signs and delivers to Vikram a stamped paper that is wholly blank, and Vikram fills it in as a promissory note for an amount within the stamp's coverage but larger than Mehta intended. Under Section 20, which statement is correct?

Mehta is liable to a holder in due course for the amount filled in, up to the stamp cover. Vikram, who is not a holder in due course, can recover only the amount Mehta intended, as the proviso to Section 20 provides.

  1. AMehta is liable for the full amount to any holder, including Vikram, because the signature gives authority to fill in any sum
  2. BMehta is not liable at all, as an incomplete instrument cannot become a valid note
  3. CMehta is liable to a holder in due course for the amount written, but Vikram, who is not a holder in due course, cannot recover more than the amount Mehta intendedCorrect
  4. DMehta is liable only up to the amount intended, even to a holder in due course

Explanation

Section 20 gives prima facie authority to complete the instrument for any amount within the stamp. The signer is liable to a holder in due course for that amount. However, a person other than a holder in due course cannot recover from the signer anything in excess of the amount intended. Option A ignores this proviso.

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